Argentina, Mexico, and currency boards: another case of rules versus discretion
This article discusses currency boards in light of the recent economic experiences of Mexico and Argentina. Carlos Zarazaga argues that currency boards do not solve the important time inconsistency problem pointed out in the rules-versus-discretion literature. Because of this failure, even the quasi-currency board established by law (the so-called convertibility law) did not protect Argentina from one of its most severe financial crises in modern times. ; In addition, there is the normative issue of whether an ironclad rule such as a currency board rule is superior to a noncontingent one. Zarazaga argues that is not the case, except perhaps when the distinction between these two kinds of rules has become blurred in countries with poor reputations for following policy commitments. In such circumstances, ironclad rules theoretically might be desirable, although this conjecture has yet to be proved formally and verified empirically. Zarazaga argues that the study of the recent economic experiences of Mexico and Argentina could be useful for addressing both issues.
Volume (Year): (1995)
Issue (Month): Q IV ()
|Contact details of provider:|| Web page: http://www.dallasfed.org/|
More information through EDIRC
|Order Information:|| Email: |
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.:
- Harold L. Cole & Timothy J. Kehoe, 2000.
"Self-Fulfilling Debt Crises,"
Review of Economic Studies,
Oxford University Press, vol. 67(1), pages 91-116.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Owen F. Humpage & Jean M. McIntire, 1995. "An introduction to currency boards," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 2-11.
- Kamin, Steven B. & Rogers, John H., 1996.
"Monetary policy in the end-game to exchange-rate based stabilizations: the case of Mexico,"
Journal of International Economics,
Elsevier, vol. 41(3-4), pages 285-307, November.
- Steven B. Kamin & John H. Rogers, 1996. "Monetary policy in the end-game to exchange-rate based stabilizations: the case of Mexico," International Finance Discussion Papers 540, Board of Governors of the Federal Reserve System (U.S.).
- Guillermo A. Calvo & Enrique G. Mendoza, 1996.
"Mexico's balance-of-payments crisis: a chronicle of death foretold,"
International Finance Discussion Papers
545, Board of Governors of the Federal Reserve System (U.S.).
- Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
- Lucas, Robert Jr. & Stokey, Nancy L., 1983.
"Optimal fiscal and monetary policy in an economy without capital,"
Journal of Monetary Economics,
Elsevier, vol. 12(1), pages 55-93.
- Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Schwartz, Anna J., 1993. "Currency boards: their past, present, and possible future role," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 147-187, December.
- Herbert E. Taylor, 1985. "Time inconsistency: a potential problem for policymakers," Business Review, Federal Reserve Bank of Philadelphia, issue Mar/Apr, pages 3-12.
- Robert J. Barro & David B. Gordon, 1983.
"Rules, Discretion and Reputation in a Model of Monetary Policy,"
NBER Working Papers
1079, National Bureau of Economic Research, Inc.
- Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
- Carlo Cottarelli, 1993. "Limiting Central Bank Credit to the Government; Theory and Practice," IMF Occasional Papers 110, International Monetary Fund.
- V. V. Chari, 1988. "Time consistency and optimal policy design," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 17-31.
When requesting a correction, please mention this item's handle: RePEc:fip:fedder:y:1995:i:qiv:p:14-24. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Chapman)
If references are entirely missing, you can add them using this form.