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Exchange Rate Regimes and Monetary Discipline - Only Hard Pegs Make a Difference

Author

Listed:
  • Manuela Francisco

    (Universidade do Minho
    University of Nottingham)

  • Michael Bleaney

    (University of Nottingham)

Abstract

Previous research has suggested that pegged exchange rates are associated with lower inflation than floating rates. In which direction does the causality run? Using data from a large sample of developing countries from 1984 to 2000, we confirm that "hard" pegs (currency boards or a shared currency) reduce inflation and money growth. There is no evidence that "soft" pegs confer any monetary discipline. The choice between soft pegs and floats is determined by inflation: when inflation is low, pegs tend to be chosen and sustained, and when inflation is high, either floats are chosen or there are frequent regime switches.

Suggested Citation

  • Manuela Francisco & Michael Bleaney, 2003. "Exchange Rate Regimes and Monetary Discipline - Only Hard Pegs Make a Difference," NIPE Working Papers 6/2003, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:6/2003
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    File URL: http://www3.eeg.uminho.pt/economia/nipe/docs/2003/NIPE_WP_6_2003.PDF
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    References listed on IDEAS

    as
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    Cited by:

    1. Michael Bleaney & Manuela Francisco, 2005. "Exchange rate regimes and inflation: only hard pegs make a difference," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1453-1471, November.
    2. Mafi-Kreft, Elham & Kreft, Steven F., 2006. "Importing credible monetary policy: A way for transition economies to fight inflation?," Economics Letters, Elsevier, vol. 92(1), pages 1-6, July.
    3. Michael Bleaney & Manuela Francisco, 2005. "Inflation persistence and exchange rate regimes: evidence from developing countries," Economics Bulletin, AccessEcon, vol. 6(2), pages 1-15.

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    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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