Austria's Hard-Currency Policy: The Mechanics of Successful Exchange-Rate Peg

Andreas Fischer () and Michael Dueker

No 2478, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: One test of an exchange-rate peg is to ask whether the implicit inflation target of the pegging country is the same as that of the anchor country. If the inflation targets of the two countries are different, the peg's long-run credibility should be rejected. We examine the Austrian experience with a 'hard currency' policy aimed at targeting its exchange rate with the German mark. We find that when our feedback rule called for an increase in Austrian interest rates, the actual increases tended to exceed the implied increases, bolstering market confidence in the responsiveness of Austria's monetary policy.

Keywords: Inflation targeting; Interest-rate policy instrument; Monetary policy (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2000-06
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Citations: View citations in EconPapers (3)

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