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Monetary Discipline and Inflation in Developing Countries: The Role of the Exchange Rate Regime

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  • Fielding, David
  • Bleaney, Michael

Abstract

Adherence to a pegged exchange rate regime has the potential to affect inflation in two ways: by instilling monetary discipline and by altering the relationship between money and prices, because shocks to the money stock are absorbed partly by changes in the balance of payments. Although the latter is a disequilibrium phenomenon (if balance of payments deficits are unsustainable in the long run), it might still be important in the medium term. Evidence on the relative importance and magnitude of the two effects is presented, using cross-sectional macroeconomic data from 80 LDCs. Both effects are found to be significant. Copyright 2000 by Oxford University Press.

Suggested Citation

  • 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 521-538, July.
  • Handle: RePEc:oup:oxecpp:v:52:y:2000:i:3:p:521-38
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    Citations

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    Cited by:

    1. Bleaney, Michael & Gundermann, Marco, 2007. "Stabilizations, crises and the "exit" problem - A theoretical model," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 876-890, December.
    2. Kibrit├žio─člu, Aykut, 2002. "Causes of Inflation in Turkey: A Literature Survey with Special Reference to Theories of Inflation," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 43-76.
    3. Fielding, David & Shields, Kalvinder, 2001. "Modelling macroeconomic shocks in the CFA Franc Zone," Journal of Development Economics, Elsevier, vol. 66(1), pages 199-223, October.
    4. Philip Kofi Adom & William Bekoe & George Quartey & Kwaku Amakye & Charles Barnor, 2016. "Impact of Market-based Policies and External Fiscal Discipline on Ghana's Inflation," Review of Development Economics, Wiley Blackwell, vol. 20(4), pages 794-816, November.
    5. M S Mohanty & Marc Klau, 2001. "What determines inflation in emerging market economies?," BIS Papers chapters,in: Bank for International Settlements (ed.), Modelling aspects of the inflation process and the monetary transmission mechanism in emerging market countries, volume 8, pages 1-38 Bank for International Settlements.
    6. David Fielding & Kevin Lee & Kalvinder Shields, 2012. "Does one size fit all? Modelling macroeconomic linkages in the West African Economic and Monetary Union," Economic Change and Restructuring, Springer, vol. 45(1), pages 45-70, February.
    7. Zelealem Yiheyis, 2013. "Trade Openness and Inflation Performance: A Panel Data Analysis in the Context of African Countries," African Development Review, African Development Bank, vol. 25(1), pages 67-84, March.
    8. Manuela Francisco & Michael Bleaney, 2003. "Exchange Rate Regimes and Monetary Discipline - Only Hard Pegs Make a Difference," NIPE Working Papers 6/2003, NIPE - Universidade do Minho.
    9. Zelealem Yiheyis & Emmanuel Cleeve, 2016. "Dynamics of the Real Exchange Rate, Inflation, and Output Growth: The Case of Malawi," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(10), pages 23-39, October.

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