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Targeting the Exchange Rate Under Inflation *
Author(s) -
Pessach Shula,
Razin Assaf
Publication year - 1994
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.1994.tb00026.x
Subject(s) - economics , exchange rate , depreciation (economics) , inflation (cosmology) , foreign exchange market , monetary economics , inflation targeting , foreign exchange , econometrics , macroeconomics , monetary policy , microeconomics , profit (economics) , physics , capital formation , financial capital , theoretical physics
The purpose of this paper is to implement empirically a variant of the new theory of exchange‐rate targeting, suitable for high‐inflation, small, open economies. We formulate an expectations‐induced relationship between the exchange rate and the fundamental, subject to random shocks and target‐zone constraints on rates of depreciation. the empirical analysis provides estimates for the key parameters of the exchange‐rate dynamic equation, and thereby identifies the unique roles played by policy variables and market fundamentals in foreign‐exchange markets.