Abstract
This overview paper examines two main issues. The first is why the exchange rate matters, potentially for all economies, but especially for emerging market economies. The second is under what circumstances and how have emerging market economies that target inflation dealt with the various challenges presented by exchange rate fluctuations in recent years. We find that emerging market economies, being more exposed to the effects of exchange rate movements, are likely to have exchange rate considerations figure more prominently in policy decisions. However, this is not to suggest that attending to the exchange rate is relevant only to emerging market economies. Recent experience serves as a clear reminder that having to keep an eye on the exchange rate is also a fact of life in industrial economies, inflation targeting or not.
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