ASSESSING EXCHANGE RATE FLUCTUATIONS WITHIN AN INFLATION TARGETING REGIME: AN ECONOMETRIC APPROACH

The pursuit of price stability is central to sustainable economic growth and development, forming the core objective of modern monetary policy. High and variable inflation imposes significant social and economic costs, distorting prices, reducing voluntary savings and investment, and encouraging capital flight. Inflation targeting, which emphasizes the deliberate maintenance of low inflation rather than focusing on output or unemployment, has emerged as a preferred monetary policy strategy. Unlike alternative approaches such as money or exchange rate targeting—which rely on intermediate variables like money supply growth or exchange rate levels—inflation targeting directly prioritizes price stability as its principal goal. This study examines the rationale, mechanisms, and implications of inflation targeting in achieving stable macroeconomic conditions