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Regular version of the site

Article

Inflation Targeting and the Forward Bias Puzzle in Emerging Countries

Journal of International Money and Finance. 2019. No. 90. P. 19-33.
Coulibaly D., Kempf H.

Based on quarterly data on 31 emerging countries (among which 16 are inflation targeting
countries) from 1990Q1 to 2014Q3, we obtain a strong support for the conjecture that the
implementation of inflation targeting weakens the Fisherian relation between expected
depreciation and the interest rate differential (uncovered interest parity condition) and
thus is conducive to the appearance of the forward bias puzzle in emerging countries.
We show that this reflects the performance of inflation targeting regimes in lowering
the level and volatility of inflation. Our finding holds when controlling for countryspecific
effects, time-specific effects, global disinflation, exchange rate management, crises,
and using different econometric techniques.