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Currency Boards, Expectations and Inflation Persistence

Author

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  • Carlson, J.A.

Abstract

Adopting the exchange rate as a nominal anchor for monetary stabilization has proved costly in a number of countries as inflationary inertia produces severe real exchange rate appreciation. What causes inflation persistence? Complementary to existing explanation such as staggered contracts and low credibility, we note that the introduction of a new monetary rule, such as a fixed exchange rate reduces inflationary expectations immediately to the target level only if all agents understand the implications of the rule.

Suggested Citation

  • Carlson, J.A., 1997. "Currency Boards, Expectations and Inflation Persistence," Papers 97-007, Purdue University, Krannert School of Management - Center for International Business Education and Research (CIBER).
  • Handle: RePEc:fth:purkib:97-007
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    More about this item

    Keywords

    EXCHANGE RATE ; INFLATION;

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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