Fixed Exchange Rates, Inflation and Macroeconomic Discipline
We use data from Guatemala and Honduras to investigate some implications of the Purchasing Power Parity theory over the long run. In particular, we address two questions. First, to what extent did the fixed exchange rate regime impose macroeconomic discipline on these countries. Second, what was the impact of terms of trade shocks and growth differentials on inflation rate differentials between those countries and the United States. We found that the fixed parities regime worked properly until the mid-1970s, providing some constraint on central bank behavior. However, the evidence suggests that the fixed exchange rate system was not sufficient to avoid inflation outbursts and balance of payments crises. Specifically, it was unable to accommodate large negative terms of trade shocks in the late 1970s and early 1980s.
|Date of creation:||Feb 1994|
|Date of revision:|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Maurice Obstfeld, 1982.
"Can We Sterilize? Theory and Evidence,"
NBER Working Papers
0833, National Bureau of Economic Research, Inc.
- Robert P. Flood & Peter Isard, 1988. "Monetary Policy Strategies," NBER Working Papers 2770, National Bureau of Economic Research, Inc.
- Svensson, Lars E O, 1994.
"Fixed Exchange Rates as a Means to Price Stability: What Have We Learned?,"
CEPR Discussion Papers
872, C.E.P.R. Discussion Papers.
- Svensson, Lars E. O., 1994. "Fixed exchange rates as a means to price stability: What have we learned?," European Economic Review, Elsevier, vol. 38(3-4), pages 447-468, April.
- Svensson, L.E.O., 1993. "Fixed Exchange Rates As a Means to Price Stability: What Have we Learned?," Papers 553, Stockholm - International Economic Studies.
- Lars E.O. Svensson, 1993. "Fixed Exchange Rates as a Means to Price Stability: What Have We Learned," NBER Working Papers 4504, National Bureau of Economic Research, Inc.
- Bruno, M., 1991. "High Inflation and the Nominal Anchors of an Open Economy," Princeton Studies in International Economics 183, International Economics Section, Departement of Economics Princeton University,.
- Alan C. Stockman, 1992.
"International Transmission Under Bretton Woods,"
NBER Working Papers
4127, National Bureau of Economic Research, Inc.
- Shantayanan Devarajan & Dani Rodrik, 1991.
"Do the Benefits of Fixed Exchange Rates Outweigh Their Costs? The Franc Zone in Africa,"
NBER Working Papers
3727, National Bureau of Economic Research, Inc.
- Devarajan, Shantayanan & Rodrik, Dani, 1991. "Do the benefits of fixed exchange rates outweigh their costs? The Franc Zone in Africa," Policy Research Working Paper Series 777, The World Bank.
- Peter J Montiel & Bijan B. Aghevli & Mohsin S. Khan, 1991. "Exchange Rate Policy in Developing Countries; Some Analytical Issues," IMF Occasional Papers 78, International Monetary Fund.
- Swoboda, Alexander K, 1978. "Gold, Dollars, Euro-Dollars, and the World Money Stock under Fixed Exchange Rates," American Economic Review, American Economic Association, vol. 68(4), pages 625-42, September.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Steven B. Kamin, 1991. "Exchange rate rules in support of disinflation programs in developing countries," International Finance Discussion Papers 402, Board of Governors of the Federal Reserve System (U.S.).
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4661. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.