Beyond Inflation Targeting: Assessing the Impacts and Policy Alternatives

Epstein, Gerald; Yeldan, Erinç

doi:10.4337/9781849801980.00008

Cited by 20 publications

(21 citation statements)

References 10 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Some authors refer to DECs’ fragile institutions, weak fiscal balances and a general lack of domestic policy credibility (Amato and Gerlach, ; Fraga et al., ; Masson et al., ; Mishkin, ; Schaechter et al., ; Stiglitz, ) . For Keynesian and Structuralist economists one of the biggest problems of implementing ITRs in these countries is the necessary subordination of the exchange rate as economic policy instrument (Cordero, ; Epstein and Yeldan, ; FitzGerald, ; Gabor, ; Galindo and Ros, ; Vernengo, ) . ITRs’ emphasis on credibility, transparency and monetary independence implies that inflation control has to be the one and only goal of monetary policy which cannot be compromised at the expense of any other policy objective.…”

Section: The Exchange Rate and Inflation Targeting In The Literaturementioning

confidence: 99%

“…ITRs have been subject to widespread criticisms on a number of grounds: their overzealous focus on price stability at the expense of unemployment and growth, anchored in the assumptions of the long‐run neutrality of money and the natural rate of unemployment, or the non‐accelerating inflation rate of unemployment (NAIRU); their one‐sided interpretation of inflation as a demand pull phenomenon; and the problematic role of the short‐term interest rate as the main monetary policy instrument (Arestis and Sawyer, ; Argitis, 2008–09; Epstein and Yeldan, ; FitzGerald, ; Gabor, ; Rochon and Rossi, ). Given the distinct structural characteristics of DECs, an additional problem of conducting ITRs in these countries is the necessary subordination of the exchange rate as economic policy instrument (Cordero, ; Epstein and Yeldan, ; FitzGerald, ; Galindo and Ros, ; Vernengo, ). Indeed, empirical evidence shows that despite their official ITRs cum floating exchange rates, DEC central banks have been intervening heavily in their foreign exchange (FX) markets, in times of both appreciation and depreciation (Calvo and Reinhart, ; Levy‐Yeyati and Sturzenegger, ; McKinnon and Schnabl, ).…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

The Impossible Trinity: Inflation Targeting, Exchange Rate Management and Open Capital Accounts in Emerging Economies

Kaltenbrunner¹,

Painceira²

2017

Development and Change

View full text Add to dashboard Cite

This article contributes to the debate on macroeconomic management and capital account regulations in developing and emerging countries (DECs). It argues that the recommendation by neoclassical economists and international financial institutions (IFIs) to combine an inflation-targeting regime with exchange rate management, whilst maintaining open capital accounts, is not only impossible but also potentially counterproductive. The article draws on extensive semi-structured interviews with currency traders in Brazil and London to show that this is due to the particular way such a regime shapes central bank interventions in the money and foreign exchange markets and the destabilizing way these interventions interact with financial market expectations. The interview results also demonstrate that the guidelines issued by IFIs actually undermine, rather than aid, DEC central banks' initial attempts to manage excessive exchange rate movements. These results support the long-standing argument by heterodox economists and critical international political economists that DECs need to make the exchange rate an explicit instrument and goal of their macroeconomic policy and complement it with comprehensive capital account regulations to reduce the destabilizing impact of international capital flows. The interview results also give some concrete suggestions on how to achieve this.

show abstract

Section: The Exchange Rate and Inflation Targeting In The Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Impossible Trinity: Inflation Targeting, Exchange Rate Management and Open Capital Accounts in Emerging Economies

Kaltenbrunner¹,

Painceira²

2017

Development and Change

View full text Add to dashboard Cite

show abstract

“…3 Third, consistent with an inflation-targeting monetary policy, the nominal exchange rate is free to float (Masson, Savastano, and Sharma 1997;Mishkin 2000;Epstein and Yeldan 2009). The domestic central bank can intervene to manage exchange rate dynamics (or takes it into account in defining its benchmark interest rate) in order to achieve the inflation target (Edwards 2006).…”

Section: The Macroeconomics Of a Financial Dutch Diseasementioning

confidence: 99%

The Macroeconomics of a Financial Dutch Disease

Botta

2015

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in ABSTRACTWe describe the medium-run macroeconomic effects and long-run development consequences of a financial Dutch disease that may take place in a small developing country with abundant natural resources. The first move is in financial markets. An initial surge in foreign direct investment targeting natural resources sets in motion a perverse cycle between exchange rate appreciation and mounting short-and medium-term capital flows. Such a spiral easily leads to exchange rate volatility, capital reversals, and sharp macroeconomic instability. In the long run, macroeconomic instability and overdependence on natural resource exports dampen the development of nontraditional tradable goods sectors and curtail labor productivity dynamics. We advise the introduction of constraints to short-and medium-term capital flows to tame exchange rate/capital flows boom-and-bust cycles. We support the implementation of a developmentalist monetary policy targeting competitive nominal and real exchange rates in order to encourage product and export diversification.

show abstract

“…For example, maintenance of a competitive real exchange rate; implementation of capital management techniques; an explicit statement of output and employment goals; and incomes and anti-monopoly policies to limit inflation to moderate levels. To the extent possible, economic policy should focus on the variables of ultimate concern, such as efficiency, growth, and equity, rather than an intermediate variable like inflation (seeEpstein and Yeldan 2009;Stiglitz et al 2006). On the other hand, industrial policymaking should be posited on the same level…”

mentioning

confidence: 99%

Coalition Politics and Reform Dynamics in Thailand

Kanchoochat

2018

Building Inclusive Democracies in ASEAN

View full text Add to dashboard Cite

This article provides an explanation for Thailand's long-term policymaking patterns from 1980 to 2011, with particular reference to macroeconomic and industrial policies. It develops a typology of reform orientations in Thailand, conditioned by government type (strong or fragmented) and rulingcoalition type (unelected or elected elites). When under strong leadership, reform was substantively implemented; its orientation was forged into fiscal tightening and "exclusive industrial policy" when ruled by unelected elites (Prem, Anand, and Surayud), but into an expansionary budget and "inclusive industrial policy" when ruled by elected elites (Chatichai and Thaksin). In contrast, when under multi-party governments, political leaders were less capable of pursuing meaningful reform and ended up with either internationally dominant discourses (Chuan and Abhisit) or pork-barrel projects (Banharn and Chavalit). It is further argued that government type hinges upon constitutional design while the two-elite struggle has resulted from the political turmoil of the prior decade. The assessment of reform outcomes requires a rethinking of the relationship between inflation, macroeconomic stability, and growth; and of institutional prerequisites for industrial policymaking. Policy suggestions entail constitutional redesign and the redressing of macroeconomic and industrial balance.

show abstract

Beyond Inflation Targeting: Assessing the Impacts and Policy Alternatives

Cited by 20 publications

References 10 publications

The Impossible Trinity: Inflation Targeting, Exchange Rate Management and Open Capital Accounts in Emerging Economies

The Impossible Trinity: Inflation Targeting, Exchange Rate Management and Open Capital Accounts in Emerging Economies

The Macroeconomics of a Financial Dutch Disease

Coalition Politics and Reform Dynamics in Thailand

Contact Info

Product

Resources

About