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Credibility and adjustment: gold standards versus currency boards

  • Jean Baptiste Desquilbet

    ()

  • Nikolay Nenovsky

    ()

It is often maintained that currency boards (CBs) and gold standards (GSs) are alike in that they are stringent monetary rules, the two basic features of which are high credibility of monetary authorities and the existence of automatic adjustment (non discretionary) mechanism. This article includes a comparative analysis of these two types of regimes both from the perspective of the sources and mechanisms of generating confidence and credibility, and the elements of operation of the automatic adjustment mechanism. Confidence under the GS is endogenously driven, whereas it is exogenously determined under the CB. CB is a much more asymmetric regime than GS (the adjustment is much to the detriment of peripheral countries) although asymmetry is a typical feature of any monetary regime. The lack of credibility is typical for peripheral countries and cannot be overcome completely even by “hard” monetary regimes.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp692.pdf
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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2004-692.

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Length: 32 pages
Date of creation: 01 May 2004
Date of revision:
Handle: RePEc:wdi:papers:2004-692
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  1. Steve Hanke, 2002. "On dollarization and currency boards: Error and deception," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 5(4), pages 203-222.
  2. McKinnon, Ronald I, 1993. "The Rules of the Game: International Money in Historical Perspective," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 1-44, March.
  3. Nenovsky, Nikolay & Hristov, Kalin, 2002. "The new currency boards and discretion: empirical evidence from Bulgaria," Economic Systems, Elsevier, vol. 26(1), pages 55-72, April.
  4. Cowen, T. & Glazer, A. & Zajc, K., 1995. "Credibility May Require Discretion, not Rules," Papers 94-95-27, California Irvine - School of Social Sciences.
  5. Jérôme Blanc & Jean-François Ponsot, 2004. "Crédibilité et currency board : le cas lituanien," Post-Print halshs-00144002, HAL.
  6. E. V. K. Fitzgerald & Frances Stewart, 1997. "Editors' introduction," Oxford Development Studies, Taylor & Francis Journals, vol. 25(1), pages 5-10.
  7. Yorgos Rizopoulos & Nikolay Nenovsky, 2004. "Peut-on mesurer le changement institutionnel du régime monétaire ?," Revue d'Économie Financière, Programme National Persée, vol. 75(2), pages 17-36.
  8. Yeager, Leland B, 2001. " The Perils of Base Money," The Review of Austrian Economics, Springer, vol. 14(4), pages 251-66, December.
  9. Simmons, Beth A., 1996. "Rulers of the game: central bank independence during the interwar years," International Organization, Cambridge University Press, vol. 50(03), pages 407-443, June.
  10. Uche, Chibuike Ugochukwu, 1997. "Bank of England vs the IBRD: Did the Nigerian Colony Deserve a Central Bank?," Explorations in Economic History, Elsevier, vol. 34(2), pages 220-241, April.
  11. Nenovsky Nikolay & Hristov Kalin & Mihaylov Mihail, 2001. "Comparing Currency Board Automatic Mechanism in Bulgaria, Estonia and Lithuania," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 11(4), pages 1-44, December.
  12. Peter Bernholz, 2001. "Monetary Constitution, Political-Economic Regime, and Long-Term Inflation," Constitutional Political Economy, Springer, vol. 12(1), pages 3-12, March.
  13. Marie-Thérèse Camilleri Gilson, 2002. "Policy Pre-Commitment and Institutional Design: A Synthetic Indicator Applied to Currency Boards," OECD Economics Department Working Papers 330, OECD Publishing.
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