Inflation Targeting and the Pass‐through Rate in E ast A sian Economies

There has been serious debate regarding whether the inflation targeting ( IT ) framework for the emerging market economies has been an effective nominal anchor. Focusing on K orea, T hailand and the P hilippines, this article aims to contribute to the debate by providing empirical evidence on a decline in the ‘pass‐through’ effect with IT adoption. Our main findings are as follows. First, under the IT framework, K orea has followed an inflation responsive rule in a forward‐looking manner, while T hailand has adopted the rule in a backward‐looking manner. Second, only K orea experiences a reduction in the pass‐through effect under IT adoption, thereby showing a linkage between the forward‐looking inflation responsive rule and the pass‐through effect. Finally, a test of the sensitivity of inflation expectations to external price shocks in K orea supports this linkage.