Living with Flexible Exchange Rates: Issues and Recent Experience in Inflation Targeting Emerging Market Economies

55 Pages Posted: 13 Dec 2005

See all articles by Corrinne Ho

Corrinne Ho

Bank for International Settlements

Robert N. McCauley

Bank for International Settlements (BIS)

Date Written: February 2003

Abstract

This overview paper examines two main issues. The first is why the exchange rate matters, especially for emerging market economies. The second is under what circumstances and how countries have dealt with the challenges posed by the exchange rate in recent years in the context of inflation targeting. We find that emerging market economies, being more exposed to the influence of the exchange rate, are likely to accord the exchange rate a bigger role in policy assessment and decision-making. However, even with the greater emphasis on the exchange rate, the emerging market economies under review have not attended to the exchange rate in a manner that contradicted their announced inflation commitments. Furthermore, recent experience shows that having to keep an eye on the exchange rate is also a fact of life in industrial economies, inflation targeting or not.

Keywords: inflation targeting, exchange rate, monetary policy

JEL Classification: E52, E58, F31

Suggested Citation

Ho, Corrinne and McCauley, Robert N., Living with Flexible Exchange Rates: Issues and Recent Experience in Inflation Targeting Emerging Market Economies (February 2003). BIS Working Paper No. 130. Available at SSRN: https://ssrn.com/abstract=845487 or http://dx.doi.org/10.2139/ssrn.845487

Corrinne Ho

Bank for International Settlements ( email )

Centralbahnplatz 2
CH-4002 Basel, Basel-Stadt
Switzerland
00 41 61 280 9100 (Fax)

Robert N. McCauley (Contact Author)

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

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