The paper presents evidence on the â€œFear of Floatingâ€ hypothesis in an Inflation Targeting regime. We use the methodologies of Calvo and Reinhart (2002) and Ball and Reyes (2004) for a set of developed and emerging market economies to examine the existence of a possible trend of greater exchange rate flexibility after the adoption of the new regime. This exercise shows a strong movement of the economies towards a more flexible exchange rate regime after the adoption of Inflation Targeting. We also analyse interventions in the foreign exchange market using a structural VAR, and conclude that although â€œFear of Floatingâ€ cannot be totally discarded it is not the only explanation for interventions, as the exchange rate pass-through still is an important issue for the attainment of the inflation targets for many economies
Inflation Targeting, Exchange Rate Pass-through, Fear of Floating
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