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Exchange Rates, Price Levels, and Inflation Targeting: Evidence from Asian Countries

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Abstract

This study examines how the adoption of inflation-targeting influenced exchange rate pass-through and volatility in four Asian countries (Indonesia, Korea, the Philippines, and Thailand) over the sample period of January 1990 to June 2007. We find that reforming policy by adopting inflation targeting generally helped reduce pass-through in Korea and Thailand, while the results are less clear in Indonesia and the Philippines. Still, the findings indicate that inflation targeting has caused a decline in exchange rate volatility in all four countries. The important lesson from the experiences of these Asian countries is that the adoption of inflation targeting contributes to achieving the ultimate goal of inflation stability through reducing exchange rate pass-through or variability.

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File URL: http://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2010_03.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Research Institute, International University of Japan in its series Working Papers with number EMS_2010_03.

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Length: 36 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:iuj:wpaper:ems_2010_03

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Keywords: Inflation targeting; Exchange rates; Pass-through; Exchange rate volatility;

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References

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Cited by:
  1. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
  2. Runchana Pongsaparn & Panda Ketruangroch & Dhanaporn Hirunwong, 2012. "Monetary Policy conduct in Review: The Appropriate Choice of Instruments," Working Papers 2012-05, Economic Research Department, Bank of Thailand.

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