Stylized Facts
Stylized Facts
This chapter reviews evidence on the benefits and costs of currency boards. It first considers the behavior of inflation, money growth, and interest rates under various exchange rate regimes. It then turns to the “real” side of the economy—exports, investment, and output growth. Next it examines whether countries with currency boards are more susceptible to financial crises. Currency boards are associated with lower inflation compared to other fixed exchange rate systems and floating rates. However, countries operating under currency board arrangements (CBAs) have experienced more volatile output growth, presumably because of the loss of the nominal exchange rate as an adjustment tool.
Keywords: currency boards, inflation, money growth, interest rates, exchange rate regimes, financial crises
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