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Surprising Similarities: Recent Monetary Regimes of Small Economies

  • Andrew K. Rose

In contrast to earlier recessions, the monetary regimes of many small economies have not changed in the aftermath of the global financial crisis. This is due in part to the fact that many small economies continue to use hard exchange rate fixes, a reasonably durable regime. However, most of the new stability is due to countries that float with an inflation target. Though a few have left to join the Eurozone, no country has yet abandoned an inflation targeting regime under duress. Inflation targeting now represents a serious alternative to a hard exchange rate fix for small economies seeking monetary stability. Are there important differences between the economic outcomes of the two stable regimes? I examine a panel of annual data from more than 170 countries from 2007 through 2012 and find that the macroeconomic and financial consequences of regime-choice are surprisingly small. Consistent with the literature, business cycles, capital flows, and other phenomena for hard fixers have been similar to those for inflation targeters during the Global Financial Crisis and its aftermath.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19632.

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Date of creation: Nov 2013
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Publication status: published as Rose, Andrew K., 2013. "Surprising similarities: recent monetary regimes of small economies," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 1-44.
Handle: RePEc:nbr:nberwo:19632
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