The Nexus Between Inflation Targeting and Exchange Rate Volatility
This study empirically examines the issue on whether countries that target inflation systematically experience higher exchange rate volatility. A major challenge that immediately confronts such analysis is that countries do not choose their monetary regimes in a random fashion. In this paper, an attempt is made to take into account the problem of self-selection in the countries’ decision to target inflation via a treatment effect regression that estimates jointly the probability of being an inflation targeter and the outcome equation. The analysis indicates that nominal and real exchange rate volatility are both lower in inflation targeting countries than countries that do not target inflation. More importantly, the analysis also suggest that developing countries that target inflation have lower nominal and real exchange rate volatility than non-inflation targeting developing countries. In the case, of inflation targeting industrial countries, however, it is found to be higher.
|This book is provided by South East Asian Central Banks (SEACEN) Research and Training Centre in its series Staff Papers with number sp84 and published in 2011.|
|Contact details of provider:|| Postal: |
Phone: 603-9195 1888
Fax: 603-9195 1801
Web page: http://edirc.repec.org/data/seacemy.html
More information through EDIRC
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.:
- Devereux, M.B. & Lane, P.R., 2002.
"Understanding Bilateral Exchange Rate Volatility,"
CEG Working Papers
20025, Trinity College Dublin, Department of Economics.
- Devereux, Michael B & Lane, Philip R., 2002. "Understanding Bilateral Exchange Rate Volatility," CEPR Discussion Papers 3518, C.E.P.R. Discussion Papers.
- Michael B. Devereux & Philip R. Lane, 2002. "Understanding Bilateral Exchange Rate Volatility," Trinity Economics Papers 200211, Trinity College Dublin, Department of Economics.
- Rose, Andrew K., 2007.
"A stable international monetary system emerges: Inflation targeting is Bretton Woods, reversed,"
Journal of International Money and Finance,
Elsevier, vol. 26(5), pages 663-681, September.
- Andrew K. Rose, 2006. "A Stable International Monetary System Emerges: Inflation Targeting is Bretton Woods, Reversed," NBER Working Papers 12711, National Bureau of Economic Research, Inc.
- Reinhart, Carmen & Rogoff, Kenneth, 2004.
"The modern history of exchange rate arrangements: A reinterpretation,"
14070, University Library of Munich, Germany.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
- Heckman, James, 2013.
"Sample selection bias as a specification error,"
Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
- Barry Eichengreen & Ricardo Hausmann, 1999.
"Exchange Rates and Financial Fragility,"
NBER Working Papers
7418, National Bureau of Economic Research, Inc.
- Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
- 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.
- Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346.
- Bayoumi, Tamim & Eichengreen, Barry, 1998.
"Exchange rate volatility and intervention: implications of the theory of optimum currency areas,"
Journal of International Economics,
Elsevier, vol. 45(2), pages 191-209, August.
- Bayoumi, Tamim & Eichengreen, Barry, 1998. "Exchange Rate Volatility and Intervention: Implications of the Theory of Optimum Currency Areas," CEPR Discussion Papers 1982, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:sea:spaper:sp84. 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: (Yunyee)
If references are entirely missing, you can add them using this form.