Lets continue the discussion on where is exchange rate in an itf arrangement. Just read a couple of papers on itf and possible use of exchange rate in the framework. In Israel, one research mention that the two have different characteristic, and the application of both will only bring conflicts. in mexico, itf will only work if the er. regime is free floated. and read another paper that in uk experience, er. will only significantly effecting the inflation only through output gap. meanwhile, direct pass-through is weak.
As I mentioned in my past blog, that's not the case within Indonesia. but on the second thought, is it? the amount of effort of the central bank in limiting the inflation is huge this year, but still the inf. rate is predicted tobe 2 digits. it simply means that er. has a weak impact on inf. and simply because indonesian inflation is majority caused, in my opinion, by cost push! oil price man! what else ...
lets leave it that way...
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