Transparency, reputation, and credibility under floating and pegged exchange rates
Herrendorf, Berthold (1999) Transparency, reputation, and credibility under floating and pegged exchange rates. Journal of International Economics, 49, (1), 31-50. (doi:10.1016/S0022-1996(98)00060-9).
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Description/Abstract
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.
| Item Type: | Article |
|---|---|
| ISSNs: | 0022-1996 (print) |
| Related URLs: | |
| Keywords: | credibility, exchange rate regime choice, private information, reputation, transparency |
| Subjects: | H Social Sciences > HB Economic Theory |
| Divisions: | University Structure - Pre August 2011 > School of Social Sciences > Economics |
| Item ID: | 33449 |
| Date Deposited: | 14 Dec 2007 |
| Last Modified: | 01 Jun 2011 02:11 |
| Contributors: | Herrendorf, Berthold (Author) |
| Date: | October 1999 |
| Status: | Published |
| URI: | http://eprints.soton.ac.uk/id/eprint/33449 |
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