Front Matter

Front Matter

Anna Nordstrom, Scott Roger, Mark Stone, Seiichi Shimizu, Turgut Kisinbay, and Jorge Restrepo
Published Date:
November 2009
  • ShareShare
Show Summary Details

© 2009 International Monetary Fund

Production: IMF Multimedia Services Division

Typesetting: Alicia Etchebarne-Bourdin

Figures: Thomas Wood

Cataloging-in-Publication Data

The role of the exchange rate in inflation-targeting emerging economies / Mark Stone … [et al.]. – Washington, D.C. : International Monetary Fund, 2009.

p. ; cm. – (Occasional paper, 0251-6365 ; 267)

Includes bibliographical references.

ISBN 9781589067967

1. Foreign exchange rates – Developing countries. 2. Monetary Policy — Developing countries. 3. Inflation (Finance) — Developing countries. I. Stone, M. (Mark Richard). II. International Monetary Fund. III. Occasional paper (International Monetary Fund) ; no. 267.

HG3877.R65 2009

Please send orders to:

International Monetary Fund, Publication Services

700 19th Street, N.W., Washington, D.C. 20431, U.S.A.

Tel.: (202) 623-7430 Fax: (202) 623-7201




The following conventions are used in this publication:

  • In tables, a blank cell indicates “not applicable,” ellipsis points (…) indicate “not available,” and 0 or 0.0 indicates “zero” or “negligible.” Minor discrepancies between sums of constituent figures and totals are due to rounding.
  • An en dash (–) between years or months (for example, 2007-08 or January-June) indicates the years or months covered, including the beginning and ending years or months; a slash or virgule (/) between years or months (for example, 2007/08) indicates a fiscal or financial year, as does the abbreviation FY (for example, FY2008).
  • “Billion” means a thousand million; “trillion” means a thousand billion.
  • “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point).

As used in this publication, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.


This Occasional Paper explores the role of exchange rates in emerging economies with inflation-targeting regimes, an issue that has become especially germane during the current episode of financial turmoil and volatile capital flows. Under inflation targeting, the interest rate is the main monetary policy tool for influencing activity and inflation. However, there is little agreement about the appropriate role of the exchange rate. The need for further understanding of this issue is manifest in the wide array of exchange rate practices undertaken by emerging market economies, the dearth of academic analysis of this issue, and the high demand for IMF technical assistance on exchange rate issues among emerging economies that currently have inflation-targeting regimes or intend to adopt inflation targeting. This paper benefits from the unique perspective available to the IMF as a result of its near-universal membership and its cross-country analytical and operational work on the role of the exchange rate, which is at the core of the IMF’s work on surveillance. This paper benefited from discussions with Karl Habermeier, the contribution of Carlos José Garcia Toledo to the modeling, and the research assistance of Harald Anderson and Claudia Jadrijevic.

The opinions expressed in this paper are solely those of the authors and do not necessarily reflect the views of the International Monetary Fund or its Executive Directors.

Hervé Ferhani

Deputy Director

Monetary and Capital Markets Department

    Other Resources Citing This Publication