Exchange Rate Regimes and Inflation - Only Hard Pegs Make a Difference

University of Nottingham Economics Working Paper No. 03/15

38 Pages Posted: 22 Nov 2003

See all articles by Michael Bleaney

Michael Bleaney

University of Nottingham - School of Economics

Manuela Francisco

University of Nottingham - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2003

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 (currently 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 Classification: F41

Suggested Citation

Bleaney, Michael and Francisco, Manuela, Exchange Rate Regimes and Inflation - Only Hard Pegs Make a Difference (September 2003). University of Nottingham Economics Working Paper No. 03/15. Available at SSRN: https://ssrn.com/abstract=459283 or http://dx.doi.org/10.2139/ssrn.459283

Michael Bleaney (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 0 115 951 5265 (Phone)
+44 0 115 951 5141 (Fax)

Manuela Francisco

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
115 951 5870 (Phone)
115 951 4159 (Fax)

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