Journal article
Inflation Targeting and Exchange Rate Management in Less Developed Countries
Journal of international money and finance, v 81, pp 159-184
01 Mar 2018
Featured in Collection : UN Sustainable Development Goals @ Drexel
Abstract
We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that tight management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank fixes the path of the nominal exchange rate or leans heavily against the wind in a managed float.
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Details
- Title
- Inflation Targeting and Exchange Rate Management in Less Developed Countries
- Creators
- Edward Buffie - Indiana University BloomingtonM Airaudo - Drexel UniversityFelipe Zanna - International Monetary Fund
- Publication Details
- Journal of international money and finance, v 81, pp 159-184
- Publisher
- Elsevier
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Economics (School of Economics)
- Web of Science ID
- WOS:000418613100009
- Scopus ID
- 2-s2.0-85035110150
- Other Identifier
- 991019168237004721
UN Sustainable Development Goals (SDGs)
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- Collaboration types
- Domestic collaboration
- Web of Science research areas
- Business, Finance