Balance of Payments Crises Under Inflation Targeting

IMF Working Papers, April 1, 2007

Source details

Canonical URL

Balance of Payments Crises Under Inflation Targeting

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Authors: Shujing Li, Isabel K. Yan, Michael Kumhof
• Published: April 1, 2007
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451866483.001

Summary

• Title: Balance of Payments Crises Under Inflation Targeting
• Authors: Shujing Li, Isabel K. Yan, Michael Kumhof
• Date: April 1, 2007
• Series: Working Paper No. 2007/084
• Issue: 084
• Volume: 2007
• Pages: 26
• DOI: https://doi.org/10.5089/9781451866483.001
• ISBN: 9781451866483
• ISSN: 1018-5941
• Abstract summary: The paper analyzes a small open economy model under inflation targeting and shows why such a monetary regime is vulnerable to speculative attacks that take place over a short period rather than instantaneously.

Key findings

• Vulnerability to attacks:
  • Inflation-targeting regimes are vulnerable to speculative attacks that unfold over a short period rather than instantaneously.
• Determinants of collapse speed and reserve losses:
  • The speed at which the regime collapses, and the extent of reserve losses, are increasing in the central bank's explicit or implicit commitment to intervene in the foreign exchange market.
• Ranking of attack severity (from most to least severe):
  • Exchange rate targeting
  • CPI inflation targeting
  • Domestic nontradables inflation targeting
  • Money targeting
• Role of consumption composition:
  • Under inflation targeting, the size of the attack is increasing in the tradables consumption share.

Subject areas and keywords

• Subject: Consumption, Demand for money, Exchange rates, Inflation, Inflation targeting
• Keywords: rate of exchange, WP

Publication and access notes

• Working Papers series: IMF Working Papers
• Citation format provided: Chicago — Shujing Li, Isabel K. Yan, and Michael Kumhof. "Balance of Payments Crises Under Inflation Targeting", IMF Working Papers 2007, 084 (2007), accessed 9/17/2026, https://doi.org/10.5089/9781451866483.001

IMF Working Paper No. 2007/084, April 1, 2007, by Shujing Li, Isabel K. Yan, Michael Kumhof.

Content in this bundle

• 4. Brazil 2001
  • 4. Brazil 2001 (Markdown version)
  • 4. Brazil 2001 (PDF)