This paper studies how the monetary policy regime affects the relative importance of nominal exchange rates and inflation rates in shaping the response of real exchange rates to shocks. We document two facts about countries with floating exchange rates where monetary policy controls inflation using a short-term interest rate. First, the current real exchange rate predicts future changes in the ...

This lecture describes the United Kingdom’s experience with inflation targeting. It provides an historical perspective to the introduction of inflation targeting, discusses the concept of inflation targets, and compares an inflation targeting regime with money supply and exchange rate targeting regimes. It is noteworthy that inflation targeting is based on the assumption that low inflation is t...

Inflation targeting is gaining popularity as a framework for conducting monetary policy. At the same time many countries employ some sort of foreign exchange intervention policy assuming that these two policies can coexist. This paper attempts to show that both policies are not sustainable. Israel is a classic test case. We test our hypothesis using information from the financial markets. The r...

The representatives at this conference from inflation targeting central banks—including Brazil, Canada, Chile, Czech Republic, New Zealand, Korea, Thailand, and the United Kingdom—have provided us with a useful overview of how inflation targeting works in practice. These experiences will be very important as other countries, including Indonesia, consider inflation targeting. We have also had so...