Paper finds evidence in favour of ‘exchange-rate-anchored inflation targeting’

International Monetary Fund headquarters

Managing the exchange rate can help make inflation targeting a more viable proposition in 'less developed countries', according to a working paper published by the International Monetary Fund.

Marco Airaudo, Edward Buffie and Luis-Felipe Zanna say there is an "embarrassing contradiction" between theory and practice on the topic, in their paper Inflation targeting and exchange rate management in less developed countries.

The authors produce a two-sector model of a small open economy featuring

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