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Exchange rate regimes and inflation: only hard pegs make a difference

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  • Michael Bleaney
  • Manuela Francisco

Abstract

Using data from a large sample of developing countries from 1985 to 2001, we confirm that hard pegs (currency boards or a shared currency) reduce inflation and money growth. There is no evidence that soft pegs confer any monetary discipline, after other factors are controlled for. Inflation triggers regime switches. Under hard pegs, monetary growth is unaffected by fiscal deficits or by inflation shocks. Under soft pegs, as under floats, increased fiscal deficits and positive inflation shocks are associated with higher monetary growth. The apparently slower per capita output growth under hard pegs is explained by their geographical distribution.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 38 (2005)
Issue (Month): 4 (November)
Pages: 1453-1471

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Handle: RePEc:cje:issued:v:38:y:2005:i:4:p:1453-1471

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Cited by:
  1. Petreski, Marjan, 2014. "Grooming Classifications: Exchange Rate Regimes and Growth in Transition Economies," MPRA Paper 54473, University Library of Munich, Germany.
  2. Manuela Francisco & Michael Bleaney, 2005. "Inflation Persistence and Exchange Rate Regimes: Evidence from Developing Countries," NIPE Working Papers 1/2005, NIPE - Universidade do Minho.
  3. Ramkishen S. Rajan, 2011. "Management of Exchange Rate Regimes in Emerging Asia," Governance Working Papers 23214, East Asian Bureau of Economic Research.
  4. Michael Bleaney & Mo Tian, . "Currency Networks, Bilateral Exchange Rate Volatility and the Role of the US Dollar," Discussion Papers 11/06, University of Nottingham, School of Economics.
  5. Thomas Plümper & Eric Neumayer, 2008. "Exchange rate regime choice with multiple key currencies," LSE Research Online Documents on Economics 25164, London School of Economics and Political Science, LSE Library.
  6. Miles, William & Vijverberg, Chu-Ping, 2011. "Formal targets, central bank independence and inflation dynamics in the UK: A Markov-Switching approach," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 644-655.
  7. S. Rajan, Ramkishen, 2010. "The Evolution and Impact of Asian Exchange Rate Regimes," ADB Economics Working Paper Series 208, Asian Development Bank.
  8. William MILES, 2011. "Financial Globalization And Inflation In Developing Countries: A Reappraisal," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 11(1).
  9. Tavlas, George & Dellas, Harris & Stockman, Alan C., 2008. "The classification and performance of alternative exchange-rate systems," European Economic Review, Elsevier, vol. 52(6), pages 941-963, August.
  10. Aaron Jackson & William Miles, 2008. "Fixed Exchange Rates and Disinflation in Emerging Markets: How Large Is the Effect?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(3), pages 538-557, October.
  11. Mahvash Saeed Qureshi & Atish R. Ghosh & Charalambos G. Tsangarides, 2011. "Words vs. Deeds," IMF Working Papers 11/112, International Monetary Fund.
  12. Michael Bleaney, & Manuela Francisco, . "The Performance of Exchange Rate Regimes in Developing Countries - Does the Classifications Scheme Matter?," Discussion Papers 07/04, University of Nottingham, CREDIT.

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