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Exchange Rate Regimes in the Modern Era$
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Michael W. Klein and Jay C. Shambaugh

Print publication date: 2009

Print ISBN-13: 9780262013659

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262013659.001.0001

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Exchange Rate Regimes and Inflation

Exchange Rate Regimes and Inflation

(p.165) 10 Exchange Rate Regimes and Inflation
Exchange Rate Regimes in the Modern Era

Michael W. Klein

Jay C. Shambaugh

The MIT Press

This chapter considers the possible connection between the exchange rate regime and inflation performance. A basic framework is conceptualized, using a heuristic approach and a model of inflation based on money demand and money supply. Empirical studies are then discussed and surveyed in the chapter to further discover whether or not these regimes affect inflation. In this analysis, the European Monetary System is one establishment that is studied, as are the works of Levy-Yeyati and Sturzenegger and many others. The conclusion derived from the analysis of data and evidence suggests that exchange rate regimes play an important role in influencing inflation, and results show that tempering inflation can be achieved through pegged exchange rates in order to help discipline policy.

Keywords:   heuristic approach, model of inflation, inflation, European Monetary System, Levy-Yeyati, Sturzenegger, pegged exchange rates

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