Exchange Rate Regimes and Monetary Discipline - Only Hard Pegs Make a Difference

Manuela Francisco () and Michael Bleaney

No 6/2003, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: Previous research has suggested that pegged exchange rates are associated with lower inflation than floating rates. In which direction does the causality run? Using data from a large sample of developing countries from 1984 to 2000, 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. The choice between soft pegs and floats is determined by inflation: when inflation is low, pegs tend to be chosen and sustained, and when inflation is high, either floats are chosen or there are frequent regime switches.

JEL-codes: F41 (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-ifn
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Citations: View citations in EconPapers (3)

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