Austria's Hard-Currency Policy: The Mechanics of Successful Exchange-Rate Peg
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.
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|Date of creation:||Jun 2000|
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