Argentina, Mexico, and currency boards: another case of rules versus discretion
AbstractThis article discusses currency boards in light of the recent economic experiences of Mexico and Argentina. Carlos Zarazaga argues that currency boards do not solve the important time inconsistency problem pointed out in the rules-versus-discretion literature. Because of this failure, even the quasi-currency board established by law (the so-called convertibility law) did not protect Argentina from one of its most severe financial crises in modern times. ; In addition, there is the normative issue of whether an ironclad rule such as a currency board rule is superior to a noncontingent one. Zarazaga argues that is not the case, except perhaps when the distinction between these two kinds of rules has become blurred in countries with poor reputations for following policy commitments. In such circumstances, ironclad rules theoretically might be desirable, although this conjecture has yet to be proved formally and verified empirically. Zarazaga argues that the study of the recent economic experiences of Mexico and Argentina could be useful for addressing both issues.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.
Volume (Year): (1995)
Issue (Month): Q IV ()
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carlo Cottarelli, 1993. "Limiting Central Bank Credit to the Government: Theory and Practice," IMF Occasional Papers 110, International Monetary Fund.
- Robert J. Barro & David B. Gordon, 1984.
"Rules, Discretion and Reputation in a Model of Monetary Policy,"
NBER Working Papers
1079, National Bureau of Economic Research, Inc.
- Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Lucas, Robert Jr. & Stokey, Nancy L., 1983.
"Optimal fiscal and monetary policy in an economy without capital,"
Journal of Monetary Economics,
Elsevier, vol. 12(1), pages 55-93.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Harold L. Cole & Timothy J. Kehoe, 1998.
"Self-Fulfilling Debt Crises,"
Levine's Working Paper Archive
114, David K. Levine.
- Steven B. Kamin & John H. Rogers, 1996.
"Monetary policy in the end-game to exchange-rate based stabilizations: the case of Mexico,"
International Finance Discussion Papers
540, Board of Governors of the Federal Reserve System (U.S.).
- Kamin, Steven B. & Rogers, John H., 1996. "Monetary policy in the end-game to exchange-rate based stabilizations: the case of Mexico," Journal of International Economics, Elsevier, vol. 41(3-4), pages 285-307, November.
- Herb Taylor, 1985. "Time inconsistency: a potential problem for policymakers," Business Review, Federal Reserve Bank of Philadelphia, issue Mar/Apr, pages 3-12.
- Owen F. Humpage & Jean M. McIntire, 1995. "An introduction to currency boards," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 2-11.
- Guillermo A. Calvo & Enrique G. Mendoza, 1996.
"Mexico's balance-of-payments crisis: a chronicle of death foretold,"
International Finance Discussion Papers
545, Board of Governors of the Federal Reserve System (U.S.).
- Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
- Schwartz, Anna J., 1993. "Currency boards: their past, present, and possible future role," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 147-187, December.
- V.V. Chari, 1988. "Time consistency and optimal policy design," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 17-31.
- Joseph A. Whitt, Jr., 1996. "The Mexican peso crisis," Economic Review, Federal Reserve Bank of Atlanta, issue Jan, pages 1-20.
- Wu, Ying, 2005. "A modified currency board system: Theory and evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(4), pages 353-367, October.
- Marco Espinosa & Steven Russell, 1996. "The Mexican economic crisis: alternative views," Economic Review, Federal Reserve Bank of Atlanta, issue Jan, pages 21-44.
- Ferro, Gustavo, 2001. "Currency Board: From Stabilization to Full Dollarization? The Argentine Experience," MPRA Paper 15353, University Library of Munich, Germany.
- Richard W. Kopcke, 1999. "Currency boards: once and future monetary regimes?," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 21-37.
- William C. Gruben & Jahyeong Koo & Robert R. Moore, 1999. "When does financial liberalization make banks risky? : an empirical examination of Argentina, Canada and Mexico," Center for Latin America Working Papers 0399, Federal Reserve Bank of Dallas.
- Haubrich, Joseph G. & Ritter, Joseph A., 2004.
"Committing and reneging: A dynamic model of policy regimes,"
International Review of Economics & Finance,
Elsevier, vol. 13(1), pages 1-18.
- Joseph G. Haubrich & Joseph A. Ritter, 1999. "Committing and reneging: a dynamic model of policy regimes," Working Papers 1999-020, Federal Reserve Bank of St. Louis.
- Ying Wu, 2005. "Determining a Modified Currency Board's Two-Period Exchange Rate Strategy," International Advances in Economic Research, Springer, vol. 11(4), pages 347-357, November.
- Ferro, Gustavo, 2001.
"De bancos centrales, juntas monetarias y dolarización
[On central banks, currency boards and dollarization]," MPRA Paper 15354, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Delia Rodriguez).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.