Private information : an argument for a fixed exchange rate system
AbstractIn a two-country model, the paper considers reputational equilibria for monetary policies in the case where the central banks have some private information. It is shown that a fixed exchange rate system may lead, in both countries, to lower inflation biases than a flexible exchange rate system. No exogenous costs (like "political costs") of leaving the fixed exchange rate system are required for such a result to hold. The reason is that private information makes a money supply rule more difficult to sustain through reputational forces than an exchange rate rule.
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Bibliographic InfoPaper provided by CEPREMAP in its series CEPREMAP Working Papers (Couverture Orange) with number 9903.
Length: 40 pages
Date of creation: 1999
Date of revision:
Find related papers by JEL classification:
- F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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