Empirical work expanding and fine-tuning the analysis of many scholars showed that several developed and emerging countries can be considered “managed floaters.” Less than a half of inflation targeting countries effectively apply a pure float. In this sense, the literature states that the reaction functions of central banks in inflation targeting emerging countries have a significant coefficient for the nominal exchange rate.
This means that the exchange rate is an important variable for monetary policy conduct. There are several reasons to avoid sharp fluctuations in the domestic currency and to mitigate excessive volatility, above all in developing countries with a limited capacity to absorb external resources through their capital markets.