Monetary Policy, Credibility and Asymmetries : Small African Countries and the EMU Advent
AbstractAs a country sets a pig of its currency, the monetary policy credibility it expects to gain implies that the anti-inflationary performance has to be as similar as possible to the anchor country one. Failing to attain this goal can lead to speculative attacks against the currency parity. This is an insight from models of credibility in monetary policy through fixed exchange rates regimes. In addition, multiple equilibria embedded in these models may cause speculative attacks rendering the efficiency of exchange rate regimes questionable. Contrary to this theoretical insight, the franc zone continues to work despite the disinflation process in the European Union that is likely to increase the level of constraint related the use of the euro as an anchor. In this paper, we show how the existence of particular arrangements in the Franc zone allows for getting a framework without multiple equilibria and insures the stability of the system. Moreover, we introduce two kinds of structural asymmetries relative to African economies to show that without the “operations account” mechanismn, the EMU advent is likely to have increased the constraint related to a peg on the euro, leading to a more restraining peg
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Bibliographic InfoPaper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2003011.
Date of creation: 01 Jul 2003
Date of revision: 06 Aug 2002
Credibility; Monetary Policy; Exchange Rate Regime; EMU; International Monetary System; Exchange Rates;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-03-14 (All new papers)
- NEP-IFN-2004-03-14 (International Finance)
- NEP-MAC-2004-03-14 (Macroeconomics)
- NEP-MON-2004-03-14 (Monetary Economics)
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