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Fixed Exchange Rates as a Means to Price Stability: What Have We Learned?

  • Svensson, Lars E O

This paper discusses what we have learned from last year's currency crises in the ERM and Nordic countries about fixed exchange rates as a means to achieve price stability. After discussing the explanations for the crises, the paper concludes that fixed exchange rates are not a short cut to price stability. Monetary stability and credibility have to be built at home and cannot easily be imported from abroad. Fixed exchange rates are more fragile and difficult to maintain than previously thought. They may even be in conflict with price stability, by inducing a procyclical destabilizing monetary policy, and by inducing an inflation bias. Building monetary credibility is even more important with flexible exchange rates.

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File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=872
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 872.

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Date of creation: Jan 1994
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Handle: RePEc:cpr:ceprdp:872
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  1. Francesco Giavazzi & Luigi Spaventa, 1990. "The "New" EMS," Working Papers 86, Dipartimento Scienze Economiche, Universita' di Bologna.
  2. Robert P. Flood & Peter M. Garber, 1980. "Gold Monetization and Gold Discipline," NBER Working Papers 0544, National Bureau of Economic Research, Inc.
  3. Rose, Andrew K & Svensson, Lars E O, 1993. "European Exchange Rate Credibility Before the Fall," CEPR Discussion Papers 852, C.E.P.R. Discussion Papers.
  4. Jeffrey Frankel & Steven Phillips, 1991. "The European Monetary System: Credible at Last?," NBER Working Papers 3819, National Bureau of Economic Research, Inc.
  5. Maurice Obstfeld, 1984. "Rational and Self-Fulfilling Balance-of-Payments Crises," NBER Working Papers 1486, National Bureau of Economic Research, Inc.
  6. Ben Bernanke & Frederic Mishkin, 1992. "Central Bank Behavior and the Strategy of Monetary Policy: Observations From Six Industrialized Countries," NBER Working Papers 4082, National Bureau of Economic Research, Inc.
  7. Miller, Marcus & Sutherland, Alan, 1990. "The `Walters' Critique of the EMS: A Case of Inconsistent Expectations," CEPR Discussion Papers 480, C.E.P.R. Discussion Papers.
  8. Richard Portes, 1993. "EMS and EMU After the Fall," The World Economy, Wiley Blackwell, vol. 16(1), pages 1-15, 01.
  9. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
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