Chapter 7

Inflation Targeting and Exchange Rate

Pass-Through in India: An Empirical
Investigation

Arshid Hussain Peer and Mirza Allim Baig

7.1 Introduction

One of the economic phenomena that affects every citizen, almost every day, is
inflation (Reddy 1999). Monetary policy is considered to be an essential policy
response for the control of inflation. One of the key elements of the Washington
Consensus is that low and stable inflation is critical for market-driven growth and
monetary policy is the most direct determinant of inflation (Bernanke et al. 1999).
Monetary policy being the most flexible tool for achieving stabilization in the short
run, has led central banks around the world to strive for developing strategies to
control inflation and contribute to the stability and growth of the respective econo-
mies. Inflation targeting is one of those strategies which New Zealand pioneered,
followed by Canada, the United Kingdom, and others. Currently, 41 countries (both
developing and developed countries) following different exchange rate regimes have
adopted the inflation targeting framework. The list of countries following inflation
targeting regimes are presented in Appendix, Table 7.1).
Inflation targeting is defined loosely as a monetary policy strategy characterized
by public announcement of quantitative targets of inflation rate for a particular
period, and by the explicit acknowledgment that price stability is the primary goal
of monetary policy in the long run. The other features of the monetary policy
framework are an instrument and operational independence, transparency in
policymaking, and accountability of the monetary authority. These features are the
critical components of the inflation targeting framework (Kamber et al. 2015; Walsh
2015). According to Bernanke et al. (1999), the inflation targeting framework serves
two essential functions in an economy, i.e., (1) improving communication between
policymakers and the public, and (2) the accountability and discipline in monetary

A. H. Peer · M. A. Baig (*)

Department of Economics, Jamia Millia Islamia (Central University), New Delhi, India
e-mail: mabaig@jmi.ac.in

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 115
A. K. Mishra et al. (eds.), Critical Perspectives on Emerging Economies,
Contributions to Economics, https://doi.org/10.1007/978-3-030-59781-8_7
116 A. H. Peer and M. A. Baig

policymaking. These functions help in reducing uncertainty, and thereby reducing

volatility in the economy.
In the emerging markets, the exchange rate was at the heart of the macroeconomic
debate for decades as it was either used to bring inflation down or tax the export
sector (Edwards 2006). Historically, the appropriateness of exchange rate regime
particularly for the emerging economies are always being debated and discussed.
However, inflation targeting is being adopted irrespective of exchange rate regimes.
After the Asian and Russian financial crises, several countries adopted the combi-
nation of the flexible exchange rate and inflation targeting. Though this move made
exchange rate less central in policy debates of most emerging markets, however,
with the adoption of inflation targeting, several relevant exchange rate-related
questions, many of them being new, brought exchange rate back into policy debates
implying no sign of cooling down of the relationship between the exchange rate and
monetary policy.
Eichengreen (2002) argues that inflation targeting in open and emerging econo-
mies is complicated than the closed economy as the additional channel of the
exchange rate is activated. The exchange rate channel makes emerging economies
open and vulnerable to foreign shocks. The shock can be in the commodity market or
financial market. This change in the exchange rate implies the monetary policy as an
external factor impact the domestic goal of price stability. Further, Blanchard (2004)
argues that in an open economy, an increase in interest rate will make the domestic
debt more attractive and hence, appreciation of the currency. However, if the
probability of debt is high (due to adverse fiscal conditions), the depreciation of
currency takes place increasing the initial level of debt. Similarly, Taylor (2000)
found a positive relationship between the level of inflation and exchange rate pass-
through.
In the case of inflation targeting, the monetary authority commits to control
inflation at a low and stable level. In other words, when a country adopts inflation
targeting as a monetary policy rule then the exchange rate pass-through should
decline. The exchange rate pass-through to domestic prices can be defined as
two-stage process. In the first stage, there is change in import prices due to unit
change in exchange rate; and in second stage, there is change in consumer prices due
to change in import prices. In an open economy, the exchange rate pass-through
relates the inflation and exchange rate. It is of particular importance to monetary
policymakers as the size and speed of transmission of the exchange rate pass-through
are important for proper forecasting of inflation, management, and assessment of
monetary policy.
During the period 2006–2013, the Indian economy experienced a very high
inflationary pressure. The average inflation during the period remained higher than
9% (Ghate and Kletzer 2016). The RBI and central government tried various
measures to control the inflation, and finally, in 2013, a committee was constituted
for review and strengthening of the monetary policy. The committee emphasized on
price stability as the principal objective of monetary policy. The price is to be
controlled within the range of 4%, with a standard deviation of 2% in the medium
term. The central government, in consultation with RBI, will determine the “target”
in terms of consumer price index (CPI) once in 5 years.
7 Inflation Targeting and Exchange Rate Pass-Through in India: An Empirical. . . 117

India is one of the emerging economies which has adopted inflation targeting in
2015. In Indian context, it is essential to understand the dynamics of exchange rate
pass-through, as the RBI has the commitment of price stability under the inflation
targeting regime. The magnitude of pass-through enlightens the policymakers about
the influence of external factors on domestic inflation, which is the policy objective.
The analysis of pass-through on the newly available CPI-combined provides the
country-specific shreds of evidence under changing monetary policy regime and
subsequent low-inflation environment, which is entirely different from the pre-IT
bouts of food and fuel inflation. Further, India also provides the near laboratory
conditions to understand the relationship between exchange rate pass-through and
inflation targeting for other open and emerging economies.
The main objective of this chapter is to examine empirically the impact of
exchange rate pass-through on consumer prices in India. The rest of the chapter is
organized as follows. The literature review is presented in Sect. 7.2. The Sect. 7.3
deals with methodology of the study. The empirical result is discussed in Sect. 7.4.
Finally, the Sect. 7.5 presents the conclusion of the study.

7.2 Literature Review

Researchers in the field of economics have traditionally made many simplifying

assumptions concerning inflation and exchange rate. According to the Law of One
Price (LOOP), the price of a tradeable good should be the same in every country
when expressed in the same currency unit. The purchasing power parity (PPP)
theory was developed on the back of the LOOP. The PPP provides an explanation
of the equalization of general price level in different countries when expressed in the
same currency. The empirical literature has found little support for the complete
pass-through of costs, or in other words, PPP does not hold in general. Many studies
on the modeling of exchange rate determination starts with the assumption that PPP
does not hold perfectly (e.g., Baig et al. 2003).
There are many explanations that have been put forward for the incomplete pass-
through of exchange rate fluctuation to domestic prices. Krugman (1987) and
Dornbusch (1987) put forward the microeconomic aspects of imperfect competition
and pricing to market as reasons for incomplete pass-through. Under new open-
economy macroeconomic models, the pass-through is expounded through local
currency pricing and producer currency pricing models. The former maintains that
foreign exporters price the good in terms of the domestic market, thus resulting in
zero pass-through. In the latter case, the pricing of the product is done in the currency
of the country of origin, thereby giving rise to pass-through and hence, a divergence
of prices, which are more than transportation costs.
Taylor (2000) related the exchange rate pass-through with the level of inflation.
The pass-through was found to be low in countries having a credible monetary
policy. McCarthy (2007) uses the VAR model with quarterly data from 1976Q1-
1994Q4 to estimate the pass-through effect of the exchange rate and import prices to
118 A. H. Peer and M. A. Baig

domestic inflation for nine industrialized countries. The impact of external factors
was found to be modest, implying central banks have been successful in managing
inflationary expectations. This indirectly highlights the role that domestic policies
have in stabilizing and controlling inflation in the integrated world. Ca’ Zorzi et al.
(2007) examined the exchange rate pass-through in 12 emerging economies using
the VAR method and found the evidence in favor of the Taylor hypothesis when the
two outliers Turkey and Argentina are excluded. The study found high pass-through
in the United Kingdom and the USA challenging the conventional wisdom that pass-
through is high in emerging countries than developed countries. The study also
found an insignificant relation between pass-through and openness of the economy.
On the relationship between inflation targeting and exchange rate, there is no
clear answer to the question of whether the former has any impact on the later or not.
Eichengreen (2002) highlighted the complicated nature of inflation targeting in open
and emerging economies. The exposure to external shocks makes the control and
forecasting of inflation difficult. Further, most of these economies have liabilities in
foreign currencies, which makes the monetary authorities to intervene in foreign
exchange management, thereby sacrificing the flexibility which inflation targeting
framework provides to stabilize the economy in the short run. The credibility of
central banks of emerging economies are below par when compared with the
advanced economies. To gain credibility for monetary policy, these central banks
will be forced to adopt a strict version of inflation targeting when flexible target
perhaps may be the most valuable option for them. In the same vein, Olivier
Blanchard (2004) argues that fiscal policy is an excellent tool to control inflation
in a country having a high level of initial debt and a high proportion of foreign debt
or if the probability to default on the debt is high. The author first develops a model
containing interaction between exchange rate, interest rate, and the likelihood of
default on debt. The data from the Brazilian economy is used to test the claim. The
policy followed by Brazil during the 2002 crisis to control inflation is found in line
with the predictions of the model.
Gagnon and Ihrig (2004) developed a theoretical model which hypothesize that
credible monetary policy leads to low exchange rate pass-through. The model is then
put to the test on quarterly data of 20 industrialized countries for the period
1971–2003. The authors split the country-specific sample from the date of adoption
of official inflation targets or inflation targeting. Though the estimated rate of pass-
through varied from country to country, it declined in the second period. The long-
run pass-through was found to be around 0.23 for the full sample period. The pass-
through for the first period was found to be higher than the second period. The
decline was found significant in countries where authorities adopted inflation targets.
The authors also regressed the pass-through on mean and standard deviation of
inflation individually, and again the pass-through was found lower in the second
period. The coefficient of inflation suggested that one-third of the decline in pass-
through is due to a low-inflation environment in the second period as a result of
credible monetary policy. The import share of GDP was found insignificant in the
exchange rate pass-through model. The study attributed that the change in monetary
policy objective to price stability is the primary determinant factor in explaining the
decline of pass-through to domestic prices.
7 Inflation Targeting and Exchange Rate Pass-Through in India: An Empirical. . . 119

Edwards (2006) explores the relationship between inflation targeting and

exchange rate using the least square method on quarterly data from 1985 to 2005.
The study considers a mixed bag of the seven economies, where two are advanced
and five are emerging economies. The results obtained by the study point that the
exchange rate pass-through has declined in post-inflation targeting period. The
decline has been more in the case of non-tradable goods prices than tradable
goods prices. Regarding the exchange rate volatility, the study found no evidence
of its rise under inflation targeting regime. On the question of the exchange rate as
the variable in the model, it was found that countries that had a history of high
inflation have put actual weight on exchange rate during the inflation targeting
period.
Similarly, Daboussi and Thameur (2014) conducted the cross-country compara-
tive study of the exchange rate pass-through in six emerging inflation targeting
economies and found a decline in the pass-through after the adoption of inflation
targeting. Taguchi and Bolortuya (2019) provide empirical evidence for the loss of
exchange rate pass-through in Mongolia in the inflation targeting regime. The
authors argue that the forward-looking nature of the targeting framework results in
the anchoring of expectations. The anchoring of expectations occurs in less focus of
domestic agents on exchange rate movements and a resultant loss of pass-through.
In the Indian context, there are few studies available in the literature on exchange
rate pass-through. The brief reviews of selected studies are presented here. Ghosh
and Rajan (2007) explored the relation of CPI and exchange rate in India using
bivariate error correction mechanisms, assuming home demand conditions and
foreign prices exogenous to the system. They found that a 100% change in exchange
leads to around 40–50% change in CPI. Using the split sample technique, they did
not find any significant change in the exchange rate pass-through between pre- and
post-reform periods. Khundrakpam (2007) estimated the exchange rate pass-through
into the wholesale price index (WPI) in India using monthly data for the period
1991:08–2005:03. The study found that the degree of pass-through in India is low. A
10% change in the exchange rate increases final prices by 0.6–0.9% only. By
incorporating dummies, the study found the pass-through coefficients are higher
during appreciation of exchange rate than depreciation of the exchange rate. Finally,
the rolling regression technique revealed no declining trend of exchange rate pass-
through. An increase in import penetration, lowering import tariff associated with
liberalization, and increased inflation persistence are conjectured as plausible rea-
sons for non-declining exchange rate pass-through in India. The study drew the
monetary policy lesson that the more excellent monitoring of the impact of the
exchange rate may be assumed to lowering the pass-through which entails
underrating future inflation.
Bhattacharya et al. (2008) examined the relationship between inflation and the
exchange rate in India by estimating the impact of a change in the nominal exchange
rate on both WPI and CPI using monthly data for the period 1997–2007. The study
used the frameworks of VAR and VECM with variables of CPI, WPI, nominal
exchange rate, world commodity prices, and crude oil prices. The study found a
moderate exchange rate pass-through in India. In the long run, the elasticity for CPI
varies between 3.1 and 17% and that of WPI is 28.6%. The world food prices and
120 A. H. Peer and M. A. Baig

crude oil prices also show a moderate level of impact on Inflation in India. The crude
oil shows an insignificant effect on CPI, which may be supported by the fact that fuel
prices in India were administrated.
Mendali and Das (2017) examined the exchange rate pass-through to wholesale
price index using five-variable VAR model for the period April 1992–November
2013. The results from the study revealed the insignificant impact of exchange
movements on WPI. The authors attribute the oil prices and persistence of inflation
as the primary determinants of inflation. The WPI is found to be explaining 70–90%
variation in inflation while oil prices and exchange rate are explaining the same,
respectively, around 9–15% and 5.7% over 1 month. Patra et al. (2018) conducted a
study on exchange rate pass-through from April-2005 to March 2016 using the VAR
framework. The study found time-varying and nonlinear pass-through of the
exchange rate to domestic prices. The exchange rate pass-through effects are also
found asymmetric with the strongest pass-through when there is a small deprecia-
tion. This has consequences for monetary policy in terms of policy effectiveness and
transmission mechanism. The study found a significant decline in exchange rate
pass-through during post-2014. The study reveals that before 2013–2014, pass-
through is found to be around 15% over 5 years, which is declining continuously
since then.
The brief literature survey, both in the international and Indian context revealed
the broad scenario of exchange rate pass-through on prices. The different methods
and methodologies are adopted to study the relationship between exchange rate pass-
through and prices during pre-inflation targeting regime and inflation targeting
regime. A number of researchers found that after the adoption of inflation targeting
as a goal of monetary policy exchange rate pass-through declines (e.g., Gagnon and
Ihrig 2004, Edwards 2006, Lamia and Djelassi 2017, and, López-Villavicencio and
Pourroy 2019). In nutshell, we can say that there is exchange rate pass-through to the
prices, albeit, the degree of the pass-through varies from one study to the other.

7.3 Data and Methodology

In an open-economy model, exchange rate not only influences the price but is also
influenced by many domestic factors—price level being one of the important factors.
The vector auto-regression (VAR) model is commonly used in the literature to
understand the dynamics of monetary policy (e.g., Ramachandran and Baig 2004).
The VAR is preferred over a single equation model due to its properties of being
simple while at the same time helping to study the reinforcing mechanisms among
different variables (Ito and Sato 2008). In the present study, we examine the
exchange rate pass-through to the consumer prices using the monthly data on the
Indian economy for the period January 2011–October 2019. The sample period is
subdivided under two scenarios, pre-inflation targeting period (January 2011–
October 2015) and post-inflation targeting period (November 2015–October 2019).
The study uses the variables, monthly trade-based NEER-36 for exchange rate,
and combined-CPI for prices. It is to be noted that the trade-based NEER-36 may be
7 Inflation Targeting and Exchange Rate Pass-Through in India: An Empirical. . . 121

considered as the better proxy for the studies on exchange rate pass-through. To
understand the importance of the exchange rate on headline inflation, we use
combined-CPI in the study. The combined-CPI provides the broader measure
available for inflation at the consumer level, and it is also the measure that RBI
targets under inflation targeting framework of the monetary policy. The Index of
Industrial Production (IIP) is used as a proxy for output as the monthly GDP data is
not available in India. The crude oil data is the monthly price of one-barrel oil in
rupee terms. The oil price is indexed with the base year 2010–11. The interest rate
used in the study is the weighted average of Call Money Rate (CMR) as such rate is a
good indicator of monetary policy actions in the short run.
The study used VAR model for the empirical estimation. Mathematically, the
VAR model can be expressed as:

X
p
Yt ¼ ∁ þ ϕ i Yt 1 þ Et ð7:1Þ
i¼1

where Yt represents the vector of endogenous variables, ∁ is a vector of constants,

ϕi denotes the matrices of auto-regressive coefficients, and Et is a vector of white
noise processes. The model is used in the study is similar to McCarthy (2007), with
the exception that we are only concerned with its impact on domestic inflation
measured in terms of CPI.

7.4 Empirical Results

In order to examine the impact of exchange rate pass-through on consumer prices in

India, we have estimated VAR model using monthly data for the period January
2011–October 2019. The sample period is further subdivided under two scenarios,
pre-inflation targeting period (January 2011–October 2015) and post-inflation
targeting period (November 2015–October 2019). It is to be noted that even though
RBI signed the inflation targeting monetary policy framework agreement in
February 2015, we use November 2015 as a starting point to account for monetary
policy lag up to two quarters. We also decided the break point on the basis of
empirical estimation of the model.
All the variables are seasonally adjusted before using in the estimation of the
model. Since all the explanatory lag variables are predetermined, and there is no
dependency among the explanatory variables within the system, thus there is no
problem of simultaneity and identification; hence, we can estimate the system of
equations by ordinary least square (OLS) method. The identification of the structural
shock is achieved by appropriately ordering the variables of interest and applying a
Cholesky decomposition to the variance-covariance matrix of the reduced form
residuals Et.
As a first step, we check the condition of stationarity of all the variables using
ADF and PP tests with constant and trend levels. The variables were found to be
122 A. H. Peer and M. A. Baig

Table 7.2 Results of variance decomposition of variables for the sub-period January 2011–
October 2015
Period S.E. D_OIL D_IIP D_CMR D_NEER D_CPI
1 0.385917 2.901952 0.286940 1.163281 4.914239 90.73359
2 0.407631 10.19271 0.407698 9.699185 8.499161 71.20125
3 0.447049 10.20770 0.801001 11.05772 8.460011 69.47357
4 0.457923 9.934865 1.010146 15.13860 8.049852 65.86654
5 0.469585 9.786411 2.390428 15.07989 7.957262 64.78601
6 0.475502 9.358785 3.279356 16.53724 8.828301 61.99632
7 0.476700 9.314652 3.267933 16.95795 8.806839 61.65263
8 0.47707 9.455660 3.499376 16.75562 9.308048 60.98129
9 0.478822 9.439714 3.692826 16.69858 9.337522 60.83135
10 0.478928 9.443211 3.687559 16.79696 9.340250 60.73202
Source: Authors’ estimation based on data from data base on Indian Economy, RBI

non-stationary at the level form but stationary at first difference. The co-integration
test shows no-integration among the variables. This helps us to use standard VAR
model for estimating the relation between exchange rate and domestic inflation.
We estimate the VAR model as specified in Eq. (7.1) with five variables on
consumer inflation, index for industrial production, exchange rate, short-term inter-
est rate, and oil prices. The optimum lag length in the model is decided on the basis
Akaike Information Criteria (AIC). The impulse response and variance decomposi-
tion are used to assess the pass-through from exchange rate movements to consumer
prices. The impulse response to exchange rate shock is computed over the time
horizon of 10 months. The variance decomposition shows the percentage of forecast
variance in domestic prices attributed to the exchange rate and hence providing an
idea of its importance for domestic inflation. The important results are discussed
below.

7.4.1 Variance Decomposition of Inflation

The results of variance decomposition for the sub-periods January 2011–October

2015 and November 2015–October 2019 are presented, respectively, in Tables 7.2
and 7.3. The result shows how vital the shocks of exchange rate have been to
consumer prices. For consumer price, the one standard deviation exchange rate
shocks show different impacts before- and after-inflation targeting. The exchange
rate explains around 9.34% variation in domestic inflation during pre-inflation
targeting period (Table 7.2), which declines to only 5.87% in inflation targeting
period (Table 7.3) over 10 months. Also, the variations over the periods are very low
during pre-inflation targeting period as compared to the inflation targeting period
except period 1 to period 2 (See Tables 7.2 and 7.3).
The persistence of inflation explains around 68–81% under inflation targeting
period (Table 7.3) whereas, before IT framework, it varies around 60–91%
7 Inflation Targeting and Exchange Rate Pass-Through in India: An Empirical. . . 123

Table 7.3 Results of variance decomposition of variables for the sub-period November 2015–
Ocotber 2019
Period S.E. D_OIL D_IIP D_CMR D_NEER D_CPI
1 0.116262 1.961060 2.086048 13.39717 1.329862 81.22586
2 0.123838 2.540222 6.516856 16.12616 4.972049 69.84471
3 0.124535 2.518825 7.508328 15.84858 5.696300 68.42796
4 0.124606 2.518375 7.540746 15.81259 5.865038 68.26325
5 0.124614 2.519164 7.542734 15.81135 5.875781 68.25097
6 0.124614 2.519554 7.542636 15.81132 5.876655 68.24984
7 0.124614 2.519574 7.542640 15.81139 5.876652 68.24974
8 0.124614 2.519576 7.542650 15.81139 5.876650 68.24973
9 0.124614 2.519576 7.542651 15.81139 5.876651 68.24973
10 0.124614 2.519576 7.542651 15.81139 5.876651 68.24973
Source: Authors’ estimation based on data from Data Base on Indian Economy, RBI

(Table 7.2) over 10 months. The monetary policy impact also remains almost same,
which highlights the predictable monetary policy under inflation targeting period
during the sub-period November 2015-Ocotber 2019 as compared to the multiple
indicator approach being adopted during the sub-period January 2011–
October 2015.

7.4.2 Impulse Response of Inflation to Exchange Rate Shock

The results of impulse response of inflation to exchange rate shock for the
sub-periods January 2011–October 2015 and November 2015–October 2019 are
presented, respectively, in Figs. 7.1 and 7.2. The result of impulse response function
shows the muted impact of the exchange rate on CPI during inflation targeting
regime (Fig. 7.2), while before inflation targeting regime, the exchange rate causes
fluctuations in domestic inflation (Fig. 7.1). It seems, over the period, the response of
inflation is broadly converging to zero for both the sub-sample periods under study.
However, the main feature that needs special attention is that under inflation
targeting regime, the impact of different shocks remains almost constant and,
hence, predictable. This is important from the perspective of economic agents as it
removes the uncertain implications of different shocks on domestic prices resulting
in optimal decision-making.

7.5 Conclusion

The empirical investigation of the study to understand the impact of exchange rate
pass-through on consumer prices before- and during-inflation targeting regimes is
carried out using variance decomposition and impulse response functions under
124 A. H. Peer and M. A. Baig

.4

.2

.0

-.2
1 2 3 4 5 6 7 8 9 10

Fig. 7.1 Impulse response of CPI to NEER for the sub-period January 2011–October 2015.
Source: Authors’ estimation based on data from data base on Indian Economy, RBI. Note: The
solid lines indicate the accumulated impulse response to shocks and the dotted lines indicate 2
standard errors confidence bands around the estimates

.4
.3
.2
.1
.0
-.1
-.2
1 2 3 4 5 6 7 8 9 10

Fig. 7.2 Impulse response of CPI to NEER for the sub-period November 2015–Ocotber 2019.
Source: Authors’ estimation based on data from data base on Indian Economy, RBI. Note: The solid
lines indicate the accumulated impulse response to shocks and the dotted lines indicate 2 standard
errors confidence bands around the estimates

VAR framework. The study finds that there is a significant decline of exchange rate
pass-through under inflation targeting regime as compared to its previous regime,
i.e., the multiple indicator approach regime. This finding is in line with the important
study by Patra et al. (2018). The study also supports the Gagnon and Ihrig (2004)
theory which maintains a decline in exchange rate pass-through under inflation
targeting framework. The chapter suggests that the decline in exchange rate pass-
through via imported inflation may be helpful for monetary policy to achieve the
target of inflation in India.

Acknowledgments This is the part of PhD work of the first author carried out under the
supervision of the second author in the Department of Economics, Jamia Millia Islamia, New Delhi.
The earlier version of this chapter was presented in the second International Conference on
Economics and Finance (ICEF-2020), Organized jointly by D/o Economics, BITS Pilani &
Trulaske College of Business, University of Missouri, USA BITS, at Pilani K K Birla Goa Campus,
Goa during 23-25 January 2020. The authors duly acknowledge the suggestions given in the
conference for the improvement of this chapter. However, the authors owe the responsibility of
errors and omissions in the chapter, if any.
7 Inflation Targeting and Exchange Rate Pass-Through in India: An Empirical. . . 125

Appendix

Table 7.1 List of countries following inflation targeting regimes

Exchange Exchange
Country rate regime Year Target Country rate regime Year Target
Albania Floating 2009 (3+/ 1) Thailand Floating 2000 (0.5–3)
Armenia Floating 2006 (4.5+/ Turkey Floating 2006 (5.5+/
1.5) 2)
Brazil Floating 1999 (4.5+/ Uganda Floating 2011 5
2)
Colombia Floating 1999 (2–4) Ukraine Floating 2016 (6+/
2)
Czech Floating 1997 (3+/ 1) Uruguay Floating 2007 (3–7)
Republic
Georgia Floating 2009 3 Australia Free floating 1993 (2–3)
Ghana Floating 2007 (8.5+/ Canada Free floating 1991 (2+/
2) 1)
Hungary Floating 2001 (3+/ 1) Chile Free floating 1999 (3+/
1)
Iceland Floating 2001 (2.5+/ Japan Free floating 2013 2
1.5)
India Floating 2015 (2–6) Mexico Free floating 2001 (3+/
1)
Israel Floating 1997 (2+/ 1) Norway Free floating 2001 (2.5+/
1)
Jamaica Floating 2017 (4–6) Poland Free floating 1998 (2.5+/
1)
Kazakhstan Floating 2015 4 Russia Free floating 2015 4
Korea Floating 2001 (3+/ Sweden Free floating 1993 2
10)
Moldova Floating 2013 (3.5–6.5) United Free floating 1992 2
Kingdom
New Zealand Floating 1990 (1–3) Guatemala Stabilized 2005 (5+/
arrangement 1)
Paraguay Floating 2011 4.5 Indonesia Stabilized 2005 (5+/
arrangement 1)
Peru Floating 2002 (2+/ 1) Costa Rica Crawl-like 2018 (2–4)
arrangement
Philippines Floating 2002 (4+/ 1) Dominican Crawl-like 2012 (3–5)
Republic arrangement
Romania Floating 2005 (3+/ 1) Serbia Crawl-like 2006 (4–8)
arrangement
South Africa Floating 2000 (3–6)
Source: Authors’ own compilation from annual report on exchange arrangements and exchange
restrictions, IMF, 2018
126 A. H. Peer and M. A. Baig

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