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Exchange Rate Regimes and Monetary Discipline - Only Hard Pegs Make a Difference

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Author Info
Manuela Francisco () (Universidade do Minho, University of Nottingham)
Michael Bleaney () (University of Nottingham)

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Abstract

Previous research has suggested that pegged exchange rates are associated with lower inflation than floating rates. In which direction does the causality run? Using data from a large sample of developing countries from 1984 to 2000, 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. The choice between soft pegs and floats is determined by inflation: when inflation is low, pegs tend to be chosen and sustained, and when inflation is high, either floats are chosen or there are frequent regime switches.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 6/2003.

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Date of creation: 2003
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Handle: RePEc:nip:nipewp:6/2003

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Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
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F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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References listed on IDEAS
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.:
  1. Jeannine Bailliu & Robert Lafrance & Jean-François Perrault, 2002. "Does Exchange Rate Policy Matter for Growth?," Working Papers 02-17, Bank of Canada. [Downloadable!]
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  2. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring. [Downloadable!] (restricted)
  3. Bleaney, Michael & Fielding, David, 2002. "Exchange rate regimes, inflation and output volatility in developing countries," Journal of Development Economics, Elsevier, vol. 68(1), pages 233-245, June. [Downloadable!] (restricted)
  4. Fielding, David & Bleaney, Michael, 2000. "Monetary Discipline and Inflation in Developing Countries: The Role of the Exchange Rate Regime," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 521-38, July.
  5. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Berger, Helge & Sturm, Jan-Egbert & Haan, Jakob de, 2000. "An Empirical Investigation into Exchange Rate Regime Choice and Exchange Rate Volatility," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  7. Grace Juhn & Paolo Mauro, 2002. "Long-Run Determinants of Exchange Rate Regimes: A Simple Sensitivity Analysis," IMF Working Papers 02/104, International Monetary Fund. [Downloadable!]
  8. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does The Nominal Exchange Rate Regime Matter?," Working Papers 97-09, New York University, Leonard N. Stern School of Business, Department of Economics.
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  9. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Melvin, Michael, 1985. "The Choice of an Exchange Rate System and Macroeconomic Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 467-78, November. [Downloadable!] (restricted)
  11. Agnes Benassy-Quere & Benoit Coeure, 2000. "Big and Small Currencies : The Regional Connection," Working Papers 2000-10, CEPII research center. [Downloadable!]
  12. Collins, Susan M., 1996. "On becoming more flexible: Exchange rate regimes in Latin America and the Caribbean," Journal of Development Economics, Elsevier, vol. 51(1), pages 117-138, October. [Downloadable!] (restricted)
  13. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Paul R. Masson, 2000. "Exchange Rate Regime Transitions," IMF Working Papers 00/134, International Monetary Fund.
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