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Interactions between monetary policy and exchange rate in inflation targeting emerging countries: the case of three East Asian countries

  • Sek, Siok Kun

This paper investigates empirically how the reaction of monetary policy to exchange rate has changed after the adoption of inflation targeting regime in three East Asian countries. Using a structural VAR and single equation methods, this study shows that the reactions of monetary policy to exchange rate shocks as well as CPI (demand shocks) and output (supply shocks) have declined under the inflation targeting environment. The policy function reacts weakly to the exchange rate movements before and after the financial crisis of 1997 in two out of the three countries.

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File URL: http://mpra.ub.uni-muenchen.de/12034/1/MPRA_paper_12034.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12034.

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Date of creation: 2008
Date of revision: 09 Dec 2008
Handle: RePEc:pra:mprapa:12034
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  9. André Minella & Paulo Springer de Freitas & Ilan Goldfajn & Marcelo Kfoury Muinhos, 2003. "Inflation Targeting in Brazil: Constructing Credibility Under Exchange Rate Volatility," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] b26, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
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  11. John B. Taylor, 2001. "The Role of the Exchange Rate in Monetary-Policy Rules," American Economic Review, American Economic Association, vol. 91(2), pages 263-267, May.
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  15. Frömmel, Michael & Schobert, Franziska, 2006. "Monetary Policy Rules in Central and Eastern Europe," Hannover Economic Papers (HEP) dp-341, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
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  17. Taylor, John B., 1998. "The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank," Seminar Papers 649, Stockholm University, Institute for International Economic Studies.
  18. Piti Disyatat & Gabriele Galati, 2005. "The effectiveness of foreign exchange intervention in emerging market countries," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 97-113 Bank for International Settlements.
  19. Reginaldo P. Nogueira Jnr, 2006. "Inflation Targeting and the Role of Exchange Rate Pass-through," Studies in Economics 0602, School of Economics, University of Kent.
  20. Adolfson, Malin, 2001. "Incomplete Exchange Rate Pass-Through and Simple Monetary Policy Rules," SSE/EFI Working Paper Series in Economics and Finance 478, Stockholm School of Economics.
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  22. Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange Rate Pass-Through into Import Prices: A Macro or Micro Phenomenon?," NBER Working Papers 8934, National Bureau of Economic Research, Inc.
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  24. Christopher J. Neely, 2000. "Are changes in foreign exchange reserves well correlated with official intervention?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 17-32.
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  26. Frederic S Mishkin & Miguel A Savastano, 2002. "Monetary Policy Strategies For Emerging Market Countries: Lessons From Latin America," Comparative Economic Studies, Palgrave Macmillan, vol. 44(2-3), pages 45-82, September.
  27. Gerlach, Stefan & Smets, Frank, 2000. "MCIs and monetary policy," European Economic Review, Elsevier, vol. 44(9), pages 1677-1700, October.
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