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Unemployment And Relative Labor Market Institutions Between Trading Partners

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Executive Summary

After New Zealand initiated inflation targeting in 1990, a large number of industrial and emerging countries have explicitly adopted an inflation target as their nominal anchor. In the last two decades, ten industrial economies and twenty emerging economies 1 have adopted the full-fledged inflation targeting system for managing monetary policy. Many other emerging countries are intended to adopt this monetary framework in the near future. Given the vulnerability of emerging countries to exchange rate shocks, a key element for the success of this strategy depends on its ability to reduce the exchange rate pass-through. Various studies have shown a decrease in exchange rate pass-through in the last two decades: is it related to inflation targeting?

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