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Private information : an argument for a fixed exchange rate system

Author

Listed:
  • Aubert, Ludovic
  • Laskar, Daniel

Abstract

In a two-country model, the paper considers reputational equilibria for monetary policies in the case where the central banks have some private information. It is shown that a fixed exchange rate system may lead, in both countries, to lower inflation biases than a flexible exchange rate system. No exogenous costs (like "political costs") of leaving the fixed exchange rate system are required for such a result to hold. The reason is that private information makes a money supply rule more difficult to sustain through reputational forces than an exchange rate rule.

Suggested Citation

  • Aubert, Ludovic & Laskar, Daniel, 1999. "Private information : an argument for a fixed exchange rate system," CEPREMAP Working Papers (Couverture Orange) 9903, CEPREMAP.
  • Handle: RePEc:cpm:cepmap:9903
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    More about this item

    JEL classification:

    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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