Inflation targeting and exchange market pressure in developing economies: Some international evidence

This study examines how inflation targeting (IT) relates to the variabilities of exchange market pressure and its components over 101 developing countries, of which 16 are IT countries. Employing propensity score matching methods, we find that an IT regime helps stabilize exchange market pressure, and it reduces the volatility of changes in international reserves. This result reflects the argument that the policy commitment to an IT regime improves the credibility of monetary policy conduct, and thus monetary authorities would not be required to intervene in the foreign exchange market under an IT regime.