Jump to ContentJump to Main Navigation
Show Summary Details
More options …

The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Lambertini, Luisa / Nimark, Kristoffer / Wang, Pengfei

2 Issues per year


IMPACT FACTOR 2017: 0.378
5-year IMPACT FACTOR: 0.462

CiteScore 2017: 0.62

SCImago Journal Rank (SJR) 2017: 0.553
Source Normalized Impact per Paper (SNIP) 2017: 0.605

Online
ISSN
1935-1690
See all formats and pricing
More options …

Inflation targeting and exchange rate regimes in emerging markets

Christian Ebeke / Armand Fouejieu
Published Online: 2018-07-11 | DOI: https://doi.org/10.1515/bejm-2017-0146

Abstract

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 dampening the endogeneity of the adoption of IT using a selection on observables, 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. IT countries with low trade and financial openness and with a large share of external debt exhibit a lower exchange rate flexibility than others. Moreover, 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.

Keywords: exchange rate regime; inflation targeting; macroeconomic conditions

JEL Classification: E5; C1; F3; F6

References

  • Abo-Zaid, S., and D. Tuzemen. 2012. “Inflation Targeting: A Three-Decade Perspective.” Journal of Policy Modeling 34: 621–645.CrossrefWeb of ScienceGoogle Scholar

  • Aghion, P., P. Bacchetta, R. Rancière, and K. Rogoff. 2009. “Exchange Rate Volatility and Productivity Growth: The Role of Financial Development.” Journal of Monetary Economics 56 (4): 494–513.Web of ScienceCrossrefGoogle Scholar

  • Ai, C., and E. C. Norton. 2003. “Interaction Terms in Logit and Probit Models.” Economics Letters 80: 123–129.CrossrefGoogle Scholar

  • Ball, C. P. and J. Reyes. 2008. “Inflation Targeting or Fear of Floating Disguise? A Broader Perspective.” Journal of Macroeconomics 30 (1): 308–326.CrossrefWeb of ScienceGoogle Scholar

  • Chinn, M. D., and H. Ito. 2008. “A New Measure of Financial Openness.” Journal of Comparative Analysis: Research and Practice 10 (3): 309–322.Google Scholar

  • Dreher, A., J. De Haan, and J. E. Sturm. 2008. “Does High Inflation Cause Central Bankers to Lose Their Job? Evidence Based on a New Dataset.” European Journal of Political Economy 24: 778–787.CrossrefGoogle Scholar

  • Edwards, S. 1996. “The Determinants of the Choice between Fixed and Flexible Exchange-Rate Regimes.” NBER Working Paper No 5756.Google Scholar

  • Garcia, C. J., J. E. Restrepo, and S. Roger. 2011. “How Much Should Inflation Targeters Care About the Exchange Rate.” Journal of International Money and Finance 30: 1590–1617.Web of ScienceCrossrefGoogle Scholar

  • Eichengreen, B., and R. Razo-Garcia. 2013. “How Reliable are De Facto Exchange Rate Regime Classifications?” International Journal of Finance and Economics 18: 216–239.Web of ScienceCrossrefGoogle Scholar

  • Gonçalves, C., and J. Salles. 2008. “Inflation Targeting in Emerging Economies: What Do the Data Say?” Journal of Development Economics 85 (1–2): 312–318.CrossrefWeb of ScienceGoogle Scholar

  • Güçlü, M. 2008. “The Determinants of Exchange Rate Regimes in Emerging Market Economies.” In Proceedings of the Conference on Emerging Economic Issues in a Globalizing World, 177–191. Izmir University of Economics, Papers of the Annual IUE-SUNY Cortland Conference in Economics.Google Scholar

  • Klein, M., and J. C. Shambaugh. 2010. Exchange Rate Regimes in the Modern Era. Cambridge, MA: The MIT Press.Google Scholar

  • Lane, P. R., and G. M. Milesi-Ferretti. 2007. “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004.” Journal of International Economics 73: 223–250.CrossrefGoogle Scholar

  • Lin, S. 2010. “On the International Effect of Inflation Targeting.” The Review of Economics and Statistics 92 (1): 195–199.CrossrefGoogle Scholar

  • Lin, S., and H. Ye. 2009. “Does Inflation Targeting Make a Difference in Developing Countries?” Journal of Development Economics 89 (1): 118–123.CrossrefWeb of ScienceGoogle Scholar

  • Markiewicz, A. 2006. “Choice of Exchange Rate Regime in Transition Economies: An Empirical Analysis.” Journal of Comparative Economics 34 (3): 484–498.CrossrefGoogle Scholar

  • Martin, P., T. Maryer, and M. Thoeing. 2012. “The Geography of Conflicts and Free Trade Agreements.” American Economic Journal: Macroeconomics 4 (4): 1–35.Google Scholar

  • McKinnon, R. 1963. “Optimum Currency Areas.” American Economic Review 53: 717–725.Google Scholar

  • Méon, P.-G., and J.-M. Rizzo. 2002. “The Viability of Fixed Exchange Rate Commitments: Does Politics Matter? A Theoretical and Empirical Investigation.” Open Economies Review 13: 111–132.CrossrefGoogle Scholar

  • Minea, A., and R. Tapsoba. 2014. “Does Inflation Targeting Improve Fiscal Discipline?” Journal of International Money and Finance 40: 185–203.CrossrefWeb of ScienceGoogle Scholar

  • Mishkin, F. S., and K. Schmidt-Hebbel. 2007. “Does Inflation Targeting Make a Difference?” In Monetary Policy Under Inflation Targeting, edited by F. S. Mishkin and K. Schmidt-Hebbel, 291–372, Central Bank of Chile.Google Scholar

  • Mundell, R. 1961. “A Theory of Optimal Currency Areas.” Amarican Economic Review 53: 657–665.Google Scholar

  • Rizzo, J. M. 1998. “The Determinants of the Choice of an Exchange Rate Regime: A Probit Analysis.” Economic Letters 59: 283–287.CrossrefGoogle Scholar

  • Roger, S. 2009. “Inflation Targeting at 20: Achievements and Challenges.” IMF Working Paper No. 09/236.Google Scholar

  • Rose, A. 2011. “Exchange Rate Regimes in the Modern Era: Fixed, Floating, and Flaky.” Journal of Economic Literature 49 (3): 652–672.Web of ScienceCrossrefGoogle Scholar

  • Rosenbaum, P. R. 2002. Observational Studies. New York: Springer.Google Scholar

  • Stone, M., T. Kisinbay, A. Nordstrom, J. Restrepo, S. Roger, and S. Shimizu. 2009. “The Role of the Exchange Rate in Inflation-Targeting Emerging Economies.” IMF Occasional Paper No. 267.Google Scholar

  • Vega, M., and D. Winkelried. 2005. “Inflation Targeting and Inflation Behavior: A Successful Story?” International Journal of Central Banking 1: 153–175.Google Scholar

  • von Hagen, J., and J. Zhou. 2005. “The Choice of Exchange Rate Regimes: An Empirical Analysis for Transition Economies.” Economics of Transition 13 (4): 679–703.CrossrefGoogle Scholar

  • von Hagen, J., and J. Zhou. 2007. “The Choice of Exchange Rate Regimes in Developing Countries: A Multinomial Panel Analysis.” Journal of International Money and Finance 26: 1071–1094.CrossrefGoogle Scholar

About the article

Published Online: 2018-07-11


Citation Information: The B.E. Journal of Macroeconomics, Volume 18, Issue 2, 20170146, ISSN (Online) 1935-1690, DOI: https://doi.org/10.1515/bejm-2017-0146.

Export Citation

©2018 Walter de Gruyter GmbH, Berlin/Boston.Get Permission

Comments (0)

Please log in or register to comment.
Log in