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Currency boards: are they as strong as they look?

Author

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  • Jean-Louis COMBES

    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

  • Romain VEYRUNE

Abstract

Since Krugman 1979, we know that the fixed exchange rate regimes have a propensity to fail because governments are unable to commit simple monetary rule in order to avoid divergence between base money supply and reserve variations. The currency boards (CB) propose a radical solution: an institutional rule linking base money and reserve. In this context, how to explain the failure of the Argentina CB? We test, in a co-integration model adapted for panel data, the efficiency of the CB rule to run the monetary policy. We conclude that in some situations, as Argentina bi-monetarism, the monetary policy could become inoperative.

Suggested Citation

  • Jean-Louis COMBES & Romain VEYRUNE, 2002. "Currency boards: are they as strong as they look?," Working Papers 200214, CERDI.
    • Handle: RePEc:cdi:wpaper:179
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    References listed on IDEAS

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    1. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    2. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    3. Maddala, G S & Wu, Shaowen, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
    4. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
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    Cited by:

    1. Alain Raybaut & Dominique Torre, 2004. "Unions monétaires, caisses d'émission et dollarisation : les fondements analytiques des systèmes de change « ultra-fixes »," Revue d'Économie Financière, Programme National Persée, vol. 75(2), pages 37-54.

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