Transparency, reputation, and credibility under floating and pegged exchange rates
UNSPECIFIED. (1999) Transparency, reputation, and credibility under floating and pegged exchange rates. JOURNAL OF INTERNATIONAL ECONOMICS, 49 (1). pp. 31-50. ISSN 0022-1996Full text not available from this repository.
This paper shows that if the cost of importing foreign inflation and real exchange rate shocks are not too high, then the equilibrium nominal exchange rate regime for a country with a credibility problem is a peg, under which credibility is higher and inflation is lower than under a float. This holds true although devaluations of the pegged rate are assumed to be costless. The reason is that as realized inflation is not perfectly controllable, planned inflation under a float is private information. In contrast, since the exchange rate can be perfectly controlled, pegging resolves the private information problem, is more transparent, and makes reputation more effective. (C) 1999 Elsevier Science B.V. All rights reserved.
|Item Type:||Journal Article|
|Subjects:||H Social Sciences > HC Economic History and Conditions|
|Journal or Publication Title:||JOURNAL OF INTERNATIONAL ECONOMICS|
|Publisher:||ELSEVIER SCIENCE BV|
|Number of Pages:||20|
|Page Range:||pp. 31-50|
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