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http://ssrn.com/abstract=1808631
 
 

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Flexible Inflation Targets, Forex Interventions and Exchange Rate Volatility in Emerging Countries


Juan Carlos Berganza


Bank of Spain

Carmen Broto


Bank of Spain

April 13, 2011

Banco de Espana Working Paper No. 1105

Abstract:     
Emerging economies with inflation targets (IT) face a dilemma between fulfilling the theoretical conditions of strict IT, which imply a fully flexible exchange rate, or applying a flexible IT, which entails a de facto managed floating exchange rate with FX 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, FX interventions in some IT countries have been more effective to lower volatility than in non-IT countries, which may justify the use of flexible IT by policymakers.

Number of Pages in PDF File: 37

Keywords: inflation targeting, exchange rate volatility, foreign exchange interventions, emerging economies

JEL Classification: E31, E42, E52, E58, F31

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Date posted: April 15, 2011  

Suggested Citation

Berganza, Juan Carlos and Broto, Carmen, Flexible Inflation Targets, Forex Interventions and Exchange Rate Volatility in Emerging Countries (April 13, 2011). Banco de Espana Working Paper No. 1105. Available at SSRN: http://ssrn.com/abstract=1808631 or http://dx.doi.org/10.2139/ssrn.1808631

Contact Information

Juan Carlos Berganza (Contact Author)
Bank of Spain ( email )
Madrid 28014
Spain
+34913388034 (Phone)
+34913386212 (Fax)
Carmen Broto
Bank of Spain ( email )
Alcala 50
Madrid 28014
Spain
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