Does the exchange rate regime make a difference in inflation performance in developing and emerging countries?: The role of inflation targeting

Abstract

We apply propensity score matching estimators with multiple outcomes to evaluate the impacts of exchange rate regimes (fixed, intermediate, and flexible without inflation targeting) and inflation targeting on inflation rates in emerging and developing countries. An inflation-targeting regime does better than or at least as good work as a fixed regime in lowering inflation rates when compared with intermediate or flexible regimes. We do not observe a clear difference in inflation rates between fixed and inflation-targeting regimes in recent years (2000–2007). Intermediate and flexible regimes provide higher inflation than fixed or inflation-targeting regimes in most cases.