Abu Asab, N., Cuestas, J.C. and Montagnoli, A. (2015) Inflation targeting or Exchange Rate Targeting: Which Framework Supports The Goal of Price Stability in Emerging Market Economics? Working Paper. Sheffield Economic Research Paper Series (SERPS), 201502 (025). Department of Economics, University of Sheffield ISSN 1749-8368
Abstract
We investigate the relationship between inflation and inflation uncertainty under inflation targeting and a conventional fixed exchange rate system and the impact of each regime on inflation and inflation uncertainty over the span from 1980:01 to 2014:06. The results from GARCH in mean models reveal that, under the two monetary regimes, inflation increases inflation uncertainty and inflation uncertainty raises inflation. This positive bi-directional relationship between inflation and inflation uncertainty provides evidence of the importance of non-discretionary monetary policies. Both regimes appear effective in reducing inflation uncertainty in the long-run which suggests the importance of monetary regimes as signalling devices for inflation expectations. The fixed exchange rate regime has no impact on average inflation and inflation inertia, while inflation targeting has been successful at lowering average inflation and inflation persistence of its followers. Nevertheless, the results provide evidence that inflation targeting countries have not benefited equally from inflation targeting.
Metadata
Item Type: | Monograph |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | The Sheffield Economic Research Paper Series (SERPS) offers a forum for the research output of the Department of Economics, University of Sheffield. Papers are reviewed for quality and presentation by two internal referees and a departmental editor. However, the contents and opinions expressed remain the responsibility of the author(s). Comments are welcomed and should be addressed to the individual author(s). |
Keywords: | Inflation Targeting; Fixed Exchange Rate System; GARCH; Monetary Policy; Price Stability |
Dates: |
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Institution: | The University of Sheffield |
Academic Units: | The University of Sheffield > Faculty of Social Sciences (Sheffield) > Department of Economics (Sheffield) |
Depositing User: | Symplectic Sheffield |
Date Deposited: | 27 Jan 2016 17:22 |
Last Modified: | 27 Jan 2016 17:22 |
Published Version: | https://www.sheffield.ac.uk/economics/research/ser... |
Status: | Published |
Publisher: | Department of Economics, University of Sheffield |
Series Name: | Sheffield Economic Research Paper Series (SERPS) |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:92690 |