Price and Monetary Dynamics Under Alternative Exchange Rate Regimes
May 1, 1999
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Summary
According to theory, inflation persistence should have less variance across countries under pegged than floating exchange rates, but not necessarily a lower mean. The paper tests this prediction on postwar data for OECD countries. After allowing for the upward bias to persistence estimates created by shifts in mean inflation, the paper finds persistence has a greater spread (but not a higher mean) in the floating-rate period, as predicted by theory. Monetary growth has been much less accommodative of inflation under floating rates, most probably because of the shifts in monetary policy rather than those in exchange rate regime.
Subject: Consumer prices, Exchange rate arrangements, Floating exchange rates, Foreign exchange, Inflation, Inflation persistence, Prices
Keywords: consumer price inflation, Consumer prices, Europe, Exchange rate arrangements, exchange rates, Floating exchange rates, GDP deflator, inflation, inflation differential, Inflation persistence, inflation process, inflation shock, inflation spike, money, Price, WP
Pages:
19
Volume:
1999
DOI:
Issue:
067
Series:
Working Paper No. 1999/067
Stock No:
WPIEA0671999
ISBN:
9781451848885
ISSN:
1018-5941
