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Inflation Targeting and the Forward Bias Puzzle in Emerging Countries

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  • Dramane Coulibaly

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Hubert Kempf

Abstract

Based on quarterly data on 31 emerging countries (among which 16 are inflation targeting countries) from 1990Q1 to 2014Q3, we obtain a strong support for the conjecture that the implementation of inflation targeting weakens the Fisherian relation between expected depreciation and the interest rate differential (uncovered interest parity condition) and thus is conducive to the appearance of the forward bias puzzle in emerging countries. We show that this reects the performance of inflation targeting regimes in lowering the level and volatility of inflation which leads non-Fisherian fundamentals to be predominant. Our finding holds when controlling for country-specific effects, time-specific effects, global disinflationation, exchange rate management and using different econometric techniques.

Suggested Citation

  • Dramane Coulibaly & Hubert Kempf, 2017. "Inflation Targeting and the Forward Bias Puzzle in Emerging Countries," Working Papers hal-04141661, HAL.
    • Handle: RePEc:hal:wpaper:hal-04141661
    Note: View the original document on HAL open archive server: https://hal.science/hal-04141661
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    References listed on IDEAS

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