Gauging exchange rate targeting |
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| Affiliation: | 1. Owen Graduate School of Management, Vanderbilt University, USA;2. Department of Economics, Santa Clara University, USA;1. Department of Economics, Monash University, Clayton, VIC 3800, Australia;2. Charles Reeves School of Business, Methodist University, Fayetteville, NC 28311-1498, USA;1. Department of Economics, University of Messina, Italy;2. School of Economics, Nottingham University, United Kingdom;1. Department of Microbiology, Monash University, Clayton, Victoria 3800, Australia;2. Department of Microbiology, Graduate School of Medical Science, Kanazawa University, Takara-machi Kanazawa, Ishikawa, Japan;1. School of Mechanical and Chemical Engineering, University of Western Australia, 35 Stirling Highway, Crawley, WA 6009, Australia;2. Department of Chemistry and Chemical Engineering, Royal Military College of Canada, PO Box 17000, Station Forces, Kingston, Ontario K7K 7B4, Canada;3. Wetsus, European Centre of Excellence of Sustainable Water Technology, Oostergoweg 9, 8911 MA Leeuwarden, The Netherlands;4. Department of Biotechnology, Faculty of Applied Sciences, Delft University of Technology, Julianalaan 67, 2628 BC Delft, The Netherlands;5. Biological and Environmental Sciences and Engineering Division, Water Desalination and Reuse Center, King Abdullah University of Science and Technology, Thuwal 23955-6900, Saudi Arabia;1. Department of Economics, University of California, Berkeley, 530 Evans Hall #3880, Berkeley, CA 94720, United States;2. John F. Kennedy School of Government, Harvard University, 79 JFK Street, Cambridge MA 02138, United States;3. Department of Economics, Monash University, 900 Dandenong Road, Caulfield East VIC 3145, Australia;1. School of Mathematical Sciences, Monash University, Clayton, Victoria 3800, Australia;2. Institute of Applied Physics of the Russian Academy of Sciences, Nizhny Novgorod, Russia;3. University College London, UK;4. Nizhny Novgorod State Technical University n.a. R.E. Alekseev, Nizhny Novgorod, Russia;5. University of Southern Queensland, Toowoomba, QLD, 4350, Australia |
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| Abstract: | In 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. |
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| Keywords: | Exchange rates Exchange rate management Monetary policy rule Inflation targeting Exchange rate regimes Exchange rate classification Factor instrumental variables Data-rich estimation F4 |
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