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Exchange Rate Channel of Monetary Transmission Mechanism under Inflation Targeting

Alina M. Grebenkina – Junior Researcher of the Russian Presidential Academy of National Economy and Public Administration (Moscow, Russia). E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.

The article specifies the concept of the exchange rate channel of monetary transmission mechanism considering the effects caused by global financial and commodity markets and explains its peculiarity in countries with inflation targeting regime of monetary policy. Based on case-study approach the article provides such features as significant exogeneity of the exchange rate channel; heterogeneous pass-through effect of the exchange rate; functioning as an instrument of non-conventional monetary policy (in order to overcome stagnation and liquidity trap); distinct incentive of particular countries (primarily financial centers, commodity exporters and manufacturing exporters) to manage exchange rate expectations, particularly to cool expectations of excessive currency appreciation.

Key words: monetary transmisson mechanism, exchange rate channel, inflation targeting, cross-country analysis.