Inflation Targeting and Exchange Rate Regimes in Emerging Markets

Author/Editor:

Christian H Ebeke ; Armand Fouejieu

Publication Date:

October 28, 2015

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper investigates the effects of the adoption of inflation targeting (IT) on the choice of exchange rate regime in emerging markets (EMs), conditional on certain macroeconomic conditions. Using a large sample of EMs and after controlling for the selection bias associated with the adoption of IT, we find that IT countries on average have a relatively more flexible exchange rate regime than other EMs. However, the flexibility of the exchange rate regime shows strong heterogeneity among IT countries depending on their degree of openness and exposure to FX risks. Moreover, we find that the marginal effect of IT adoption on the exchange rate flexibility increases with the duration of the IT regime in place, and with the propensity scores to adopt it.

Series:

Working Paper No. 15/228

English

Publication Date:

October 28, 2015

ISBN/ISSN:

9781513586267/1018-5941

Stock No:

WPIEA2015228

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

36

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