On the Future of Inflation Targeting in East Asia

15 Pages Posted: 16 Jul 2015

See all articles by Ulrich Volz

Ulrich Volz

University of London - School of Oriental and African Studies (SOAS) - Economics; Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE)

Date Written: August 2015

Abstract

This article analyzes the problems associated with inflation targeting (IT) regimes in a number of East Asian countries. It scrutinizes the policy conflicts that can arise when a central bank that has adopted a formal inflation target to guide the conduct of monetary policy simultaneously manages the exchange rate and pursues financial stability objectives. To this end, it empirically investigates the importance of exchange rate and terms of trade movements as determinants of inflation rates across East Asian economies and discusses the role of central banks in guarding financial stability and the ways this may conflict with an IT regime. The article argues that IT never really has been a suitable monetary framework for East Asian countries and that it should hence be supplanted by transparent monetary frameworks that explicitly recognize the multiple goals that are being pursued by East Asian central banks.

Suggested Citation

Volz, Ulrich, On the Future of Inflation Targeting in East Asia (August 2015). Review of Development Economics, Vol. 19, Issue 3, pp. 638-652, 2015. Available at SSRN: https://ssrn.com/abstract=2631290 or http://dx.doi.org/10.1111/rode.12173

Ulrich Volz (Contact Author)

University of London - School of Oriental and African Studies (SOAS) - Economics

London, WC1E 7HU
United Kingdom

Deutsches Institut für Entwicklungspolitik (DIE) - German Development Institute (DIE) ( email )

Tulpenfeld 4
Bonn, 53113
Germany

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