Exploring the nexus between inflation targeting and exchange market pressure: Evidence from the global financial crisis

Abstract

This study investigates the effects of the inflation targeting (IT) monetary framework on the exchange market pressure index (EMPI) across 24 Asian economies from 1998 to 2018, with a particular focus on the period covering the global financial crisis (2008–2018). Employing dynamic panel data modeling and Propensity Score Matching, our analysis reveals a positive impact of implementing the IT on the EMPI. The findings suggest that adopting an IT regime effectively reduces exchange market pressure, demonstrating notable resilience following the global financial crisis of 2008. This highlights that an IT policy enhances the credibility of monetary policy, thereby decreasing the need for central bank interventions in the foreign exchange market within this framework.