Inflation and Disinflation under Alternative Exchange Rate Regimes
Inflation and Disinflation under Alternative Exchange Rate Regimes
This chapter examines whether lower inflation under currency boards compared to other regimes is associated with the currency board regime itself or the result of other determinants of inflation or possible simultaneity bias. The evidence suggests that the relationship between currency boards and good inflation performance is robust and causal. Controlling for other determinants of inflation, currency boards are associated with 8–20 percentage points per year lower inflation than simple pegs or floating regimes, reflecting both tighter monetary discipline and greater confidence in the currency.
Keywords: inflation, currency boards, exchange rate regime
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