To float or not to float?: exchange rate regimes and monetary policy efficiency in emerging market economies

Abstract

I investigate whether exchange-rate regimes influence the speed and magnitude of monetary tightening in reducing inflation in emerging market economies. Using quarterly data from eleven emerging market economies (2011Q1–2022Q4), I estimate the impulse response functions of prices, measured by the consumer price index, to a one-percentage-point policy-rate shock, instrumented with contemporaneous U.S. moves. Disinflation is faster and more persistent under floats; mixed regimes respond later and weaker; a hard peg shows brief, reversing effects. Results are robust to lag choices.