Corrinne Ho

Living with flexible exchange rates: issues and recent experience in inflation targeting emerging market economies

This overview paper examines two main issues. The first is why the exchange rate matters, especially for emerging market economies. The second is under what circumstances and how countries have dealt with the challenges posed by the exchange rate in recent years in the context of inflation targeting. We find that emerging market economies, being more exposed to the influence of the exchange rate, are likely to accord the exchange rate a bigger role in policy assessment and decision-making. However, even with the greater emphasis on the exchange rate, the emerging market economies under review have not attended to the exchange rate in a manner that contradicted their announced inflation commitments. Furthermore, recent experience shows that having to keep an eye on the exchange rate is also a fact of life in industrial economies, inflation targeting or not.

Contemplating the Credibility of Currency Boards

This chapter is a collection of observations on the issue of credibility in the specific context of modern-day currency board regimes. Using various sources of information and angles of approach, we try to facilitate a deeper and broader treatment so as to provide a different perspective, to bridge some of the gaps between theory and practice, and ultimately to shed some light on whether a currency board is indeed a useful credibility-enhancing device. In particular, we look beyond the tangible institutional attributes and examine how circumstantial factors play a role in the determination of “credibility-worthiness” and “credibility” — or the there lack of.