Dollarization and the conquest of hyperinflation in divided societies
This study argues that the delegation of monetary policy control by one country to another can reduce inflation in the delegating country. Hyperinflation is common in a divided society, one in which special interest groups can pressure a weak central government to issue money to finance their own demands while neglecting the country’s overall welfare. A commitment device like dollarization or a currency board, which gives control of the divided country’s money supply to another country, can eliminate this inflation bias. This is illustrated by Argentina’s experience with inflation and a currency board which, in effect, gave control of Argentina’s money supply to the United States. This argument is made precise using a two-country overlapping generations model to study the effects of delegation. The study also finds that a dollarization treaty between the two countries can be welfare-improving for both
Volume (Year): (2001)
Issue (Month): Sum ()
|Contact details of provider:|| Postal: |
Phone: (612) 204-5000
Web page: http://minneapolisfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.minneapolisfed.org/pubs/ Email: |
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.:
- Russell Cooper & Hubert Kempf, 1998.
"Establishing a Monetary Union,"
NBER Working Papers
6791, National Bureau of Economic Research, Inc.
- Russell Cooper & Hubert Kempf, 1998. "Establishing a Monetary Union," Boston University - Institute for Economic Development 88, Boston University, Institute for Economic Development.
- Cooper, R. & Kempf, H., 2000. "Establishing a Monetary Union," Papiers d'Economie MathÃ©matique et Applications 2000.28, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- Aizenman, Joshua, 1992. "Competitive Externalities and the Optimal Seigniorage," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(1), pages 61-71, February.
- Sebastian Edwards & Guido Tabellini, 1990.
"Explaining Fiscal Policies and Inflation in Developing Countries,"
NBER Working Papers
3493, National Bureau of Economic Research, Inc.
- Edwards, Sebastian & Tabellini, Guido, 1991. "Explaining fiscal policies and inflation in developing countries," Journal of International Money and Finance, Elsevier, vol. 10(1, Supple), pages S16-S48, March.
- Dale Bails and Margie A. Tieslau, 2000. "The Impact of Fiscal Constitutions on State and Local Expenditures," Cato Journal, Cato Journal, Cato Institute, vol. 20(2), Fall.
- 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.
- Francois R. Velde & Marcelo Veracierto, 1999.
"Dollarization in Argentina,"
Chicago Fed Letter,
Federal Reserve Bank of Chicago, issue Jun.
- repec:cto:journl:v:20:y:2000:i:2:p:179-213 is not listed on IDEAS
- V. V. Chari & Patrick J. Kehoe, 1998.
"On the need for fiscal constraints in a monetary union,"
589, Federal Reserve Bank of Minneapolis.
- Chari, V.V. & Kehoe, Patrick J., 2007. "On the need for fiscal constraints in a monetary union," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2399-2408, November.
- Kareken, John & Wallace, Neil, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 207-22, May.
- Atish R. Ghosh & Anne-Marie Gulde & Holger C. Wolf, 2000. "Currency boards: More than a quick fix?," Economic Policy, CEPR;CES;MSH, vol. 15(31), pages 269-335, October.
- Sebastian M. Saiegh & Mariano Tommasi, 1999. "Why is Argentina’s Fiscal Federalism so Inefficient? Entering the Labyrinth," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 169-209, May.
- Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
When requesting a correction, please mention this item's handle: RePEc:fip:fedmqr:y:2001:i:sum:p:3-12:n:v.25no.3. 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: (Janelle Ruswick)
If references are entirely missing, you can add them using this form.