Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212697 
Year of Publication: 
2011
Series/Report no.: 
BOFIT Discussion Papers No. 9/2011
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
Emerging economies with inflation targets (IT) face a dilemma between fulflling the theoretical conditions of "strict IT", which implies a fully flexible exchange rate, or applying a "flexible IT", which entails a de facto managed floating exchange rate with forex interventions to moderate exchange rate volatility. Using a panel data model for 37 countries we find that, although IT lead to higher exchange rate instability than alternative regimes, forex interventions in some IT countries have been more effective in reducing volatility than in non-IT countries, which may justify the use of "flexible IT" by policymakers.
Subjects: 
Inflation targeting
Exchange rate volatility
Foreign exchange interventions
Emerging economies
JEL: 
E31
E42
E52
E58
F31
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-704-7
Document Type: 
Working Paper

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