Abstract
We investigate inflation targeting (IT) in emerging markets, focusing on the role of the real exchange rate and the distinction between commodity and non-commodity exporters. IT emerging markets appear to follow a "mixed strategy" whereby both inflation and real exchange rates are important determinants of policy interest rates. The response to real exchange rates, however, is more constrained than in non-IT regimes. We also find that the response to real exchange rates is strongest in those countries following IT policies that are relatively intensive in exporting basic commodities; and present a theoretical model that explains these empirical results.
Original language | English |
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Pages (from-to) | 712-724 |
Number of pages | 13 |
Journal | World Development |
Volume | 39 |
Issue number | 5 |
DOIs | |
State | Published - 1 May 2011 |
Externally published | Yes |
Keywords
- Commodity export
- Inflation targeting
- Real exchange rate
- Taylor rule
ASJC Scopus subject areas
- Geography, Planning and Development
- Development
- Sociology and Political Science
- Economics and Econometrics