Currency boards: are they as strong as they look?

Jean-Louis Combes and Romain Veyrune ()

No 200214, Working Papers from CERDI

Abstract: Since Krugman 1979, we know that the fixed exchange rate regimes have a propensity to fail because governments are unable to commit simple monetary rule in order to avoid divergence between base money supply and reserve variations. The currency boards (CB) propose a radical solution: an institutional rule linking base money and reserve. In this context, how to explain the failure of the Argentina CB? We test, in a co-integration model adapted for panel data, the efficiency of the CB rule to run the monetary policy. We conclude that in some situations, as Argentina bi-monetarism, the monetary policy could become inoperative.

Keywords: Currency Boards; Endogenous money supply; Panel unit root test; Panel co-integration model; Argentina (search for similar items in EconPapers)
Pages: 26
Date: 2002
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Citations: View citations in EconPapers (1)

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