Inflation targeting and monetary integration in European emerging market economies

This study addresses the potential trade-off between inflation and exchange rate targeting in former transition countries, which now may be labeled emerging market economies and which prepare for entry into the Economic and Monetary Union (EMU). Among this group of countries, some implemented inflation targeting regimes. These countries may face increasing macroeconomic risks when entering the possibly insecure terrain of a soft peg in the European Exchange Rate Mechanism (ERM 2). Against this background, the study analyzes the choice of inflation targets using panel data techniques (Chapter 2), the (de facto) role of exchange rate policy in monetary strategies applying vector autoregressions (Chapter 3), and the potential costs of an additional exchange rate target under an intermediate exchange rate regime like ERM 2 in a new open economy macro model (Chapter 4).