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Private information : an argument for a fixed exchange rate system

Listed author(s):
  • Aubert, Ludovic
  • Laskar, Daniel

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.

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File URL: http://www.cepremap.fr/depot/couv_orange/co9903.ps
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File URL: http://www.cepremap.fr/depot/couv_orange/co9903.pdf
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Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Couverture Orange) with number 9903.

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Length: 40 pages
Date of creation: 1999
Handle: RePEc:cpm:cepmap:9903
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