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Inflation Targeting and the Pass‐through Rate in E ast A sian Economies
Author(s) -
Taguchi Hiroyuki,
Sohn WoongKi
Publication year - 2014
Publication title -
asian economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.345
H-Index - 28
eISSN - 1467-8381
pISSN - 1351-3958
DOI - 10.1111/asej.12029
Subject(s) - economics , linkage (software) , inflation (cosmology) , monetary economics , inflation targeting , monetary policy , chemistry , biochemistry , physics , theoretical physics , gene
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.