How Does Learning Affect Inflation After a Shift in the Exchange Rate Regime?
June 1, 1994
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Summary
This paper analyzes the consequences of a shift from a floating to a pegged exchange rate regime on the actual and expected inflation rate, in an environment of asymmetric information. Policymaking is endogenous and the public learns rationally. There are two main findings. First, there is a “honeymoon effect” after the regime change, where inflation is lower than in the long run. Second, the asymmetric information outcome converges to that of symmetric information in the long run.
Subject: Exchange rate arrangements, Exchange rates, Inflation, Purchasing power parity, Real exchange rates
Keywords: exchange rate, inflation rate, WP
Pages:
26
Volume:
1994
DOI:
Issue:
070
Series:
Working Paper No. 1994/070
Stock No:
WPIEA0701994
ISBN:
9781451960372
ISSN:
1018-5941
