Does Inflation Targeting Always Matter for the ERPT? A robust approach

Mardi | 2019-02-05
Salle des thèses 16h – 17h20


This paper estimates the effects of different forms of inflation targeting (IT) in the exchange rate pass-through (ERPT). To this end, we first estimate the ERPT for a large sample of countries using state-space models. We then consider the adoption of an inflation targeting framework by a country as a treatment to find suitable counterfactuals to the actual targeters. By controlling forself-selection bias and endogeneity of the monetary policy regime, we confirm that the ERPT tends to be lower for countries adopting explicit IT. However, we uncover that more ancient regimes, adopting a band inflation target and keeping inflation close to the target outperform other IT regimes. We also show that IT is effective even with relatively high inflation target or low independence of the central bank.