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What to Target? Inflation or Exchange Rate

Author

Listed:
  • Shu Lin

    () (School of Economics, Fudan University, 600 Guoquan Road, Shanghai 200433, China; shulin75@gmail.com; corresponding author)

  • Haichun Ye

    () (School of Economics, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai 200433, China)

Abstract

This study empirically compares, for the first time, the popular exchange-rate–targeting regime with the recently emerged inflation-targeting framework in developing countries. Applying a variety of propensity score matching methods and dynamic panel generalized method of moments (GMM) regressions to a sample of 50 developing countries for the years 1990–2006, we find strong and robust evidence that, compared to exchange-rate targeting, inflation targeting leads to a significantly lower inflation rate, and the lower inflation rate does not come at a cost of slower growth.

Suggested Citation

  • Shu Lin & Haichun Ye, 2012. "What to Target? Inflation or Exchange Rate," Southern Economic Journal, Southern Economic Association, vol. 78(4), pages 1202-1221, April.
  • Handle: RePEc:sej:ancoec:v:78:4:y:2012:p:1202-1221
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    File URL: http://dx.doi.org/10.4284/0038-4038-78.4.1202
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Balima, Wenéyam Hippolyte & Combes, Jean-Louis & Minea, Alexandru, 2017. "Sovereign debt risk in emerging market economies: Does inflation targeting adoption make any difference?," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 360-377.
    2. Anthony Orji & Onyinye .I. Anthony-Orji & Joan C. Okafor, 2015. "Inflation And Unemployment Nexus In Nigeria: Another Test of the Phillips Curve," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(5), pages 766-778, May.
    3. Alexandru MINEA & Jean-Louis COMBES & Weneyam Hippolyte BALIMA, 2015. "Sovereign Debt Risk in Emerging Countries: Does Inflation Targeting Adoption Make Any Difference?," Working Papers 201504, CERDI.

    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance

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