Price and Monetary Dynamics Under Alternative Exchange Rate Regimes

IMF Working Papers, May 1, 1999

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Research question: Tests theoretical prediction that inflation persistence should have less variance across countries under pegged than floating exchange rates, but not necessarily a lower mean.
Sample: postwar data for OECD countries.
Key methodological note: Estimates of persistence are adjusted to allow for the upward bias created by shifts in mean inflation.

After allowing for upward bias from shifts in mean inflation:
- Persistence has a greater spread (but not a higher mean) in the floating-rate period, as predicted by theory.
Theoretical implication preserved: variance of persistence differs across regimes; mean persistence need not be lower under pegs.

Monetary growth has been much less accommodative of inflation under floating rates.
Interpretation offered: this change is most probably because of shifts in monetary policy rather than shifts in exchange rate regime.

Author: M. F. Bleaney
Date: May 1, 1999
Pages: 19
Volume: 1999
Issue: 067
Series: Working Paper No. 1999/067
DOI: https://doi.org/10.5089/9781451848885.001
Stock No: WPIEA0671999
ISBN: 9781451848885
ISSN: 1018-5941
Subjects/Keywords: Consumer prices; Exchange rate arrangements; Floating exchange rates; Foreign exchange; Inflation; Inflation persistence; Prices; consumer price inflation; Consumer prices; Europe; GDP deflator; inflation differential; inflation process; inflation shock; inflation spike; money; Price; WP

IMF Working Paper No. 1999/067 (M. F. Bleaney, May 1, 1999).

Price and Monetary Dynamics Under Alternative Exchange Rate Regimes - WP/99/67
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