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Econometric Analysis of the Currency Crisis as a Consequence of Inflation Targeting

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  • Borivoje D. Krušković

Abstract

This paper analyzes the unanalized topic in macroeconomic (monetary) politics, which is the emergence of the currency crisis as a consequence of targeting inflation. Many central banks adopted inflation targeting under a pressure from the IMF. Sudden depreciation of exchange rate which results from a fall of foreign exchange reserves to a critically low level (below an optimal level) leads to currency crisis due speculative attack. The most widely used model in the decision of creating process of monetary policy in inflation targeting regime is the macroeconomic model of a small open economy from the group New Keynesian model.

Suggested Citation

  • Borivoje D. Krušković, 2025. "Econometric Analysis of the Currency Crisis as a Consequence of Inflation Targeting," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 14(1), pages 43-57.
    • Handle: RePEc:cbk:journl:v:14:y:2025:i:1:p:43-57
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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