Exchange rate regimes and inflation: only hard pegs make a difference

Michael Bleaney · Manuela Francisco

54 citations0/0 files storedCanadian Journal of Economics/Revue canadienne d économique

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Monetary Policy and Economic Impact Global Financial Crisis and Policies Economic Theory and Policy

Abstract

Abstract. Using data from a large sample of developing countries from 1985 to 2001, 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, after other factors are controlled for. Inflation triggers regime switches. Under hard pegs, monetary growth is unaffected by fiscal deficits or by inflation shocks. Under soft pegs, as under floats, increased fiscal deficits and positive inflation shocks are associated with higher monetary growth. The apparently slower per capita output growth under hard pegs is explained by their geographical distribution. JEL classification: F41

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References

2000Fear of Floating 2004The Modern History of Exchange Rate Arrangements: A Reinterpretation 2002Fear of Floating 2001Distinguished Lecture on Economics in Government—Exchange Rate Regimes: Is the Bipolar View Correct?1988The advantage of tying one's hands 2003To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth 2003Exchange rate regimes: choices and consequences 1997Does the Nominal Exchange Rate Regime Matter?

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