Inflation Targeting and Fear of Floating in Brazil, Mexico and South Korea
We present evidence on Fear of Floating (FF) practices before and after the adoption of Inflation Targeting (IT) for three emerging countries that faced important exchange rate crises in the 1990’s (Brazil, Mexico and South Korea). We start using the methodologies proposed by Calvo and Reinhart (2002) and Ball and Reyes (2008), and check the probabilities of observing small monthly exchange rate changes, combined with large movements in policy instruments (international reserves and interest rates), which should indicate some degree of exchange rate targeting. This initial exercise suggests a progress towards greater exchange rate flexibility after IT. We then use a VAR model to analyse the monetary policy response to exchange rate and inflation shocks, and detect a drastic reduction in direct intervention in the foreign exchange market after IT, accompanied by a stronger response to inflation. These findings are consistent with the IT framework, and suggest a reduced role for FF.
Volume (Year): 10 (2009)
Issue (Month): 2 ()
|Contact details of provider:|| Postal: |
Web page: http://www.anpec.org.br/Email:
More information through EDIRC
|Order Information:|| Postal: Secretaria da ANPEC Rua Tiradentes, 17 - Ingá Niterói, RJ 24210-510 Brazil|
Web: http://www.anpec.org.br/revista/ Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ball, Christopher P. & Reyes, Javier, 2008. "Inflation targeting or fear of floating in disguise? A broader perspective," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 308-326, March.
- Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
- Flood, Robert P. & Jeanne, Olivier, 2005.
"An interest rate defense of a fixed exchange rate?,"
Journal of International Economics,
Elsevier, vol. 66(2), pages 471-484, July.
- Olivier Jeanne & Robert P. Flood, 2000. "An Interest Rate Defense of a Fixed Exchange Rate?," IMF Working Papers 00/159, International Monetary Fund.
- Flood, Robert P & Jeanne, Olivier, 2000. "An Interest Rate Defence of a Fixed Exchange Rate?," CEPR Discussion Papers 2507, C.E.P.R. Discussion Papers.
- Pesaran, H. Hashem & Shin, Yongcheol, 1998.
"Generalized impulse response analysis in linear multivariate models,"
Elsevier, vol. 58(1), pages 17-29, January.
- Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics 9710, Faculty of Economics, University of Cambridge.
- Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001.
"Why do countries float the way they float?,"
Journal of Development Economics,
Elsevier, vol. 66(2), pages 387-414, December.
- Ricardo Hausmann & Ugo Panizza & Ernesto H. Stein, 2000. "Why Do Countries Float the Way They Float?," Research Department Publications 4205, Inter-American Development Bank, Research Department.
- Ricardo Hausmann & Ugo Panizza & Ernesto H. Stein, 2000. "Why Do Countries Float the Way They Float?," IDB Publications (Working Papers) 6467, Inter-American Development Bank.
- Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
- Christopher P. Ball & Javier Reyes, 2004. "Inflation targeting or fear of floating in disguise: the case of Mexico," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(1), pages 49-69.
- Guillermo A. Calvo & Frederic S. Mishkin, 2003.
"The Mirage of Exchange Rate Regimes for Emerging Market Countries,"
Journal of Economic Perspectives,
American Economic Association, vol. 17(4), pages 99-118, Fall.
- Guillermo Calvo & Frederic S. Mishkin, 2003. "The Mirage of Exchange Rate Regimes for Emerging Market Countries," NBER Working Papers 9808, National Bureau of Economic Research, Inc.
- Guillermo A. Calvo & Carmen M. Reinhart, 2002.
"Fear Of Floating,"
The Quarterly Journal of Economics,
MIT Press, vol. 117(2), pages 379-408, May.
- Sack, Brian & Wieland, Volker, 2000.
"Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence,"
Journal of Economics and Business,
Elsevier, vol. 52(1-2), pages 205-228.
- Brian Sack & Volker Wieland, 1999. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Finance and Economics Discussion Series 1999-39, Board of Governors of the Federal Reserve System (U.S.).
When requesting a correction, please mention this item's handle: RePEc:anp:econom:v:10:y:2009:i:2:195-209. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Hugo E. A. da Gama Cerqueira)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.