On the Credibility of Currency Boards
AbstractThe paper compares the credibility of currency boards and (standard) pegs. Abandoning a currency board requires a time-consuming legislative process and an abolition will thus be previously expected. Therefore, a currency board solves the time inconsistency problem of monetary policy. However, policy can react to unexpected shocks only with a time lag, thus the threat of large shocks makes the abolition more likely. Currency boards are more credible than standard pegs if the time inconsistency problem dominates. In contrast, standard pegs, that can be left at short notice, are more credible if exogenous shocks are highly volatile and constitute the dominant problem. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 36.
Date of creation: 2004
Date of revision:
monetary policy; currency board; standard peg; credibility; time inconsistency problem; stochastic purchasing power parity;
Other versions of this item:
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
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.:
- Chang, R. & Velasco, A., 1998.
"Financial Fragility and the Exchange Rate Regime,"
98-05, C.V. Starr Center for Applied Economics, New York University.
- Roberto Chang & Andres Velasco, 1998. "Financial Fragility and the Exchange Rate Regime," NBER Working Papers 6469, National Bureau of Economic Research, Inc.
- Roberto Chang & Andres Velasco, 1997. "Financial fragility and the exchange rate regime," Working Paper 97-16, Federal Reserve Bank of Atlanta.
- Berger, Helge & Jensen, Henrik & Schjelderup, Guttorm, 2001.
"To peg or not to peg?: A simple model of exchange rate regime choice in small economies,"
Elsevier, vol. 73(2), pages 161-167, November.
- Helge Berger & Henrik Jensen & Guttorm Schjelderup, 2001. "To Peg or Not To Peg? A Simple Model of Exchange Rate Regime Choice In Small Economies," CESifo Working Paper Series 468, CESifo Group Munich.
- Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
- Corrinne Ho, 2002. "A survey of the institutional and operational aspects of modern-day currency boards," BIS Working Papers 110, Bank for International Settlements.
- Oliva, Maria-Angels & Rivera-Batiz, Luis A & Sy, Amadou N R, 2001. "Discipline, Signaling, and Currency Boards," Review of International Economics, Wiley Blackwell, vol. 9(4), pages 608-25, November.
- Gregor Irwin, 2004. "Currency boards and currency crises," Oxford Economic Papers, Oxford University Press, vol. 56(1), pages 64-87, January.
- Cappiello, Antonio, 2006.
"I currency board come strumento di stabilizzazione economica: come funzionano e dove sono adottati
[Currency boards as instrument for economic stabilisation: how they work and where they are adopte," MPRA Paper 4966, University Library of Munich, Germany.
- Oliver Grimm, 2007. "Fiscal Discipline and Stability under Currency Board Systems," CER-ETH Economics working paper series 07/66, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.