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

19 Pages Posted: 30 Nov 2005

See all articles by Michael Bleaney

Michael Bleaney

University of Nottingham - School of Economics

Manuela Francisco

University of Nottingham - School of Economics

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Abstract

Using data from a large sample of developing countries from 1985 to 2001, 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, after other factors are controlled for. Inflation triggers regime switches. Under hard pegs, monetary growth is unaffected by fiscal deficits or by inflation shocks. Under soft pegs, as under floats, increased fiscal deficits and positive inflation shocks are associated with higher monetary growth. The apparently slower per capita output growth under hard pegs is explained by their geographical distribution.

JEL Classification: F41

Suggested Citation

Bleaney, Michael and Francisco, Manuela, Exchange Rate Regimes and Inflation: Only Hard Pegs Make a Difference. Canadian Journal of Economics, Vol. 38, No. 4, pp. 1453-1471, November 2005. Available at SSRN: https://ssrn.com/abstract=856644 or http://dx.doi.org/10.1111/j.0008-4085.2005.00332.x

Michael Bleaney (Contact Author)

University of Nottingham - School of Economics ( email )

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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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