Gauging Exchange Rate TargetingJournal of International Money and Finance (2014)
AbstractIn this paper, we examine whether a monetary authority targets the exchange rate, per se, or instead simply appears to do so as it responds to the exchange rate and other variables in service to inflation and output targets. We combine data-rich estimation with a system of forward-looking equations in order to disentangle the possibilities. The combined approach reveals the potentially misleading nature of standard estimates of the extent of exchange rate and inflation targeting.We illustrate the approach by applying it to two de jure inflation targetters, Canada and Korea. In contrast to standard methods and much past work, we find that neither country targets its exchange rate; and, both are bona fide inflation targetters.
- Monetary Policy rule,
- inflation targeting,
- factor instrumental variables
Citation InformationDavid C. Parsley and Helen Popper. "Gauging Exchange Rate Targeting" Journal of International Money and Finance Vol. 43 (2014)
Available at: http://works.bepress.com/david_parsley/13/