 Pegging and stabilization policy in developing countriesEconomic Review, 2001, 17-29 Abstract: I review the case for pegging the exchange rate by surveying the recent theoretical literature on the choice of exchange rate regimes. This literature suggests that by enhancing the transparency or controllability of monetary policy, pegging may be more effective in lowering inflation expectations than other targets (such as money growth). However, under certain conditions a peg may be vulnerable to shifts in expectations. A peg also may require greater fiscal restraint by limiting the availability of inflation tax revenue; however, given certain economic distortions, policymakers may find it less costly to adopt expansionary fiscal policies under a peg than under a float. Pegging may stimulate growth by enhancing international trade or investment. However, it may reduce welfare by restricting the ability of policymakers to offset shocks. I also examine how pegging is associated with inflation and output in a sample of developing countries using a new exchange rate classification method. I find that a pegged exchange rate is associated with lower inflation and inflation volatility and with faster growth and similar output volatility. However, the theoretical survey suggests that any inferences should be drawn with care. Keywords: Foreign exchange rates; Monetary policy; Economic development (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfer:y:2001:p:17-29 Ordering information: This journal article can be ordered from Access Statistics for this article More articles in Economic Review from Federal Reserve Bank of San Francisco Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.