Integrated Monetary and Exchange Rate Frameworks
AbstractHere the author empirically estimates if the different monetary and exchange rate frameworks observed in the Accession Countries of Central and Eastern Europe and the Baltics do yield different outcomes in terms of level and variance of a set of nominal and real variables. The author follows and extends the methodology developed by Kuttner and Posen (2001), who perform a combined analysis of the individual effects of exchange rate regimes, central bank independence and announced targets in nominal variables, for a large set of developed and developing countries, and estimate that a setup that combines a free float, an independent monetary authority and inflation targeting yields an outcome that mimics the price stabilization advantages of a hard peg without its drawbacks in terms of extreme volatility. This sample of countries, not covered by the Kuttner and Posen study, supports their conclusions, for both nominal and real variables, testing for both the individual and combined effects of the frameworks, indicating that a flexible exchange rate regime, coupled with a independent monetary authority and inflation targeting, would be Pareto-improving when compared to harder regimes.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-054/2.
Date of creation: 11 Jun 2002
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monetary authority independence; inflation targeting; exchange rate regimes; EU enlargement.;
Find related papers by JEL classification:
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- P2 - Economic Systems - - Socialist Systems and Transition Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-06-13 (All new papers)
- NEP-FIN-2002-06-13 (Finance)
- NEP-MON-2002-06-13 (Monetary Economics)
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