Inflation targeting or fear of floating in disguise: the case of Mexico
This paper uses simple analytics to show the similarities and differences between inflation targeting and fear of floating in emerging markets. The analytics provide well-defined predictions for the behaviour of exchange rates and relevant monetary variables under both regimes. This allows us to distinguish clearly one regime from another and empirically test whether or not a country that targets inflation also exhibits a fear of floating. We analyse the recent experience in Mexico where the authorities now claim to be following an inflation targeting regime. Mexico is also one of the countries claimed to exhibit a fear of floating. Using data from Banco de México, we first confirm that by standard measures Mexico exhibits fear of floating. Second, we show that Mexico is inflation targeting and discuss the relationship and test for a distinction between the two. Finally, we conclude by discussing our results and their implications for other emerging market inflation targeters. Copyright © 2004 John Wiley & Sons, Ltd.
Volume (Year): 9 (2004)
Issue (Month): 1 ()
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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.:
- Guillermo A. Calvo & Carmen M. Reinhart, 2002.
"Fear of Floating,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 117(2), pages 379-408.
- Laurence Ball, 1998.
"Policy Rules for Open Economies,"
RBA Research Discussion Papers
rdp9806, Reserve Bank of Australia.
- Mishkin, Frederic S. & Savastano, Miguel A., 2001.
"Monetary policy strategies for Latin America,"
Policy Research Working Paper Series
2685, The World Bank.
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