Exchange Rate Regimes and Monetary Discipline - Only Hard Pegs Make a Difference
AbstractPrevious 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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Bibliographic InfoPaper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 6/2003.
Date of creation: 2003
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Find related papers by JEL classification:
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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- NEP-IFN-2003-10-05 (International Finance)
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