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Monetary-regime switch from exchange-rate to inflation targeting
Marjan Petreski
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The study investigates whether a switch from exchange-rate targeting to inflation targeting will facilitate a more appropriate monetary policy and a more stable macroeconomic environment in developing economies. The research finds that the exchange-rate regime is not significant in explaining growth. The empirical evidence on its effect on output volatility suggests that a terms-of-trade shock larger than seven percentage points under a fixed exchange-rate regime will give higher output volatility compared to a float. Given these findings, the study suggests the exchange rate be made flexible and that the direct targeting of inflation is a rational choice in the aftermath of peg exit. To investigate whether monetary-policy responses change under such a regime switching, allowing for the possibility of an endogenous switch, the study estimates augmented Taylor rule with two approaches: a panel switching regression; and a Markov-switching VAR. Results from both suggest that inflation targeting represented a real switch in developing economies.
- Format: Pocket/Paperback
- ISBN: 9783845401546
- Språk: Engelska
- Antal sidor: 300
- Utgivningsdatum: 2011-06-30
- Förlag: LAP Lambert Academic Publishing