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Integrated monetary and exchange rate frameworks: are there empirical differences?

  • Lucio Vinhas de Souza

    ()

The aim of the paper is to empirically estimate whether the different monetary and exchange rate frameworks observed in the accession countries of Central and Eastern Europe and the Baltic States do yield different outcomes in terms of level and variance of a set of nominal and real variables. The author follows and extends the methodology developed by Kuttner and Posen (2001), who perform a combined analysis of the individual effects of exchange rate regimes, central bank independence and announced targets in nominal variables for a large set of developed and developing countries. They also estimate that a set-up combining a free float, an independent currency board and inflation targeting yields an outcome that mimics the price stabilisation advantages of a hard peg without its drawbacks in terms of extreme volatility. This sample of countries, not covered by the Kuttner and Posen study, supports their conclusions for both nominal and real variables, testing for both the individual and combined effects of the frameworks and indicating that a flexible exchange rate regime, coupled with CBI and DIT, would be Pareto-improving when compared to harder regimes.

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Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2002-2.

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Length: 38 pages
Date of creation: 11 Oct 2002
Date of revision: 12 Oct 2002
Publication status: published
Handle: RePEc:eea:boewps:wp2002-02
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  1. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does the Nominal Exchange Rate Regime Matter?," NBER Working Papers 5874, National Bureau of Economic Research, Inc.
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  3. Lucjan T Orlowski, 1998. "Exchange-rate policies in central Europe and monetary union," Comparative Economic Studies, Palgrave Macmillan, vol. 40(3), pages 58-78, September.
  4. Cukierman, A. & Miller, G.P. & Neyapti, B., 2000. "Central Bank Rerform, Liberalization and Inflation in Transition Economies - an International Perspective," Papers 2000-19, Tel Aviv.
  5. Daniel Gros & Marc Suhrcke, 2000. "Ten Years After: What is Special about Transition Countries?," CESifo Working Paper Series 327, CESifo Group Munich.
  6. Lars E.O. Svensson, 1995. "Optimal Inflation Targets, `Conservative' Central Banks, and Linear Inflation Contracts," NBER Working Papers 5251, National Bureau of Economic Research, Inc.
  7. Lucio Vinhas de Souza & Holger van Eden & Albert de Groot & Gerbert Romijn & Elisabeth Ledrut, 2001. "EMU and Enlargement: A Review of Policy Issues," Macroeconomics 0012019, EconWPA.
  8. Guy Debelle, 1998. "Inflation Targeting in Practice," Occasional Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number occ23.
  9. Anne Marie Gulde & Juha Kähkönen & Peter M Keller, 2000. "Pros and Cons of Currency Board Arrangements in the Lead-Up to EU Accession and Participation in the Euro Zone," IMF Policy Discussion Papers 00/1, International Monetary Fund.
  10. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging Market Countries," NBER Working Papers 7618, National Bureau of Economic Research, Inc.
  11. International Monetary Fund, 2001. "Labor Markets in Hard-Peg Accession Countries: The Baltics and Bulgaria," IMF Staff Country Reports 01/100, International Monetary Fund.
  12. Kenneth N. Kuttner & Adam S. Posen, 2001. "Beyond Bipolar: A Three-Dimensional Assessment of Monetary Frameworks," Working Paper Series WP01-7, Peterson Institute for International Economics.
  13. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  14. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  15. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, vol. 41(3-5), pages 753-760, April.
  16. Eduardo Levy-Yeyati & Federico Sturzenegger, 2003. "To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth," American Economic Review, American Economic Association, vol. 93(4), pages 1173-1193, September.
  17. Jacob De Haan & Helge Berger & Erik Van Fraassen, 2001. "How to Reduce Inflation: An Independent Central Bank or A Currency Board? The Experience of the Baltic Countries," LICOS Discussion Papers 9601, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  18. Peter F. Christoffersen & Robert F. Westcott, 1999. "Is Poland Ready for Inflation Targeting?," IMF Working Papers 99/41, International Monetary Fund.
  19. Prakash Loungani & Nathan Sheets, 1995. "Central bank independence, inflation and growth in transition economies," International Finance Discussion Papers 519, Board of Governors of the Federal Reserve System (U.S.).
  20. Vivek B. Arora & Olivier D Jeanne, 2001. "Economic Integration and the Exchange Rate Regime; Some Lessons from Canada," IMF Policy Discussion Papers 01/1, International Monetary Fund.
  21. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
  22. Jens Hölscher & Lúcio Vinhas de Souza, 2001. "Exchange rate strategies of new EU entrants," Chapters, in: European Monetary Integration, chapter 9 Edward Elgar Publishing.
  23. Mark Hallerberg & Lúcio Vinhas de Souza, 2000. "The Political Business Cycles of EU Accession Countries," Tinbergen Institute Discussion Papers 00-085/2, Tinbergen Institute.
  24. Orlowski, Lucjan T., 2001. "From inflation targeting to the euro-peg: A model of monetary convergence for transition economies," Economic Systems, Elsevier, vol. 25(3), pages 233-251, September.
  25. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
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