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Austria's Hard-Currency Policy: The Mechanics of Successful Exchange-Rate Peg

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  • Dueker, Michael
  • Fischer, Andreas M

Abstract

One test of an exchange-rate peg is to ask whether the implicit inflation target of the pegging country is the same as that of the anchor country. If the inflation targets of the two countries are different, the peg's long-run credibility should be rejected. We examine the Austrian experience with a 'hard currency' policy aimed at targeting its exchange rate with the German mark. We find that when our feedback rule called for an increase in Austrian interest rates, the actual increases tended to exceed the implied increases, bolstering market confidence in the responsiveness of Austria's monetary policy.

Suggested Citation

  • Dueker, Michael & Fischer, Andreas M, 2000. "Austria's Hard-Currency Policy: The Mechanics of Successful Exchange-Rate Peg," CEPR Discussion Papers 2478, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2478
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    References listed on IDEAS

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    Cited by:

    1. Michael J. Dueker & Andreas M. Fischer, 2001. "The mechanics of a successful exchange rate peg: lessons for emerging markets," Review, Federal Reserve Bank of St. Louis, issue May, pages 47-56.

    More about this item

    Keywords

    Inflation Targeting; Interest-Rate Policy Instrument; Monetary Policy;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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