EconPapers    
Economics at your fingertips  
 

Importing Credibility through Exchange Rate Pegging

Berthold Herrendorf ()

Economic Journal, 1997, vol. 107, issue 442, 687-94

Abstract: This paper employs an optimal taxation framework in order to study the credibility of monetary policy-making in an open economy. Since inflation is, in part, uncontrollable due to stochastic disturbances, the authority's actions cannot be monitored perfectly when the exchange rate floats, thus implying that reputational forces may become ineffective. In contrast, pegging the nominal exchange rate to a low-inflation currency allows perfect monitoring because the exchange rate is, in principle, controllable. For this reason, exchange rate pegging may import credibility and result in the best reputational equilibrium, even though the authority retains the discretion to devalue unexpectedly. Copyright 1997 by Royal Economic Society.

Date: 1997
References: Add references at CitEc
Citations: View citations in EconPapers (14) Track citations by RSS feed

Downloads: (external link)
http://links.jstor.org/sici?sici=0013-0133%2819970 ... 0.CO%3B2-2&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Working Paper: IMPORTING CREDIBILITY THROUGH EXCHANGE RATE PEGGING (1996) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecj:econjl:v:107:y:1997:i:442:p:687-94

Ordering information: This journal article can be ordered from
http://www.blackwell ... al.asp?ref=0013-0133

Access Statistics for this article

Economic Journal is currently edited by Martin Cripps, Steve Machin, Woulter den Haan, Andrea Galeotti, Rachel Griffith and Frederic Vermeulen

More articles in Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().

 
Page updated 2021-01-13
Handle: RePEc:ecj:econjl:v:107:y:1997:i:442:p:687-94