Financial crises in emerging markets have led many observers to recommend abandoning fixed exchange rates and adopting more flexible regimes. Moreover, some recent research suggests that the correct exchange rate regime may have a significant effect on inflation and even economic growth. The...

A recent paper by Fatas et al. (2006) indicates that formal monetary policy targets-exchange rate, money supply or inflation targets-palpably decrease inflation in a sample of 40 countries. The authors employ various least squares estimations, which pick up the conditional average effect....