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Gauging Exchange Rate Targeting

David C. Parsley

Vanderbilt University – Finance

Helen Popper

Santa Clara University - Leavey School of Business - Economics Department

November 15, 2013

In this paper, we examine whether a monetary authority targets the exchange rate, per se, or instead simply appears to do so as it responds to the exchange rate and other variables in service to inflation and output targets. We combine data-rich estimation with a system of forward-looking equations in order to disentangle the possibilities. The combined approach reveals the potentially misleading nature of standard estimates of the extent of exchange rate and inflation targeting. We illustrate the approach by applying it to two de jure inflation targeters, Canada and Korea. In contrast to standard methods and much past work, we find that neither country targets its exchange rate; and, both are bona fide inflation targeters.

Number of Pages in PDF File: 27

Keywords: Exchange Rates, Exchange Rate Management, Monetary Policy Rule, Inflation Targeting, Exchange Rate Regimes, Exchange Rate Classification, Factor Instrumental Variables

JEL Classification: F3, F4

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Date posted: July 18, 2009 ; Last revised: December 30, 2014

Suggested Citation

Parsley, David C. and Popper, Helen, Gauging Exchange Rate Targeting (November 15, 2013). Available at SSRN: https://ssrn.com/abstract=1435544 or http://dx.doi.org/10.2139/ssrn.1435544

Contact Information

David C. Parsley (Contact Author)
Vanderbilt University – Finance ( email )
401 21st Avenue South
Nashville, TN 37203
United States
615-322-0649 (Phone)
615-343-7177 (Fax)

Helen Popper
Santa Clara University - Leavey School of Business - Economics Department ( email )
500 El Camino Real
Santa Clara, CA California 95053
United States
(408) 554-6952 (Phone)
(408) 554-2331 (Fax)
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