Fixed exchange rates and disinflation in emerging markets: how large is the effect?

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Authors
Jackson, Aaron
Miles, William
Issue Date
2008-10
Type
Article
Language
en_US
Keywords
Exchange rates , Inflation
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Abstract

We examine developing countries which have institutional quality ratings for the effects of exchange rate rigidity on inflation. The level of institutional development exerts no effect on the impact of currency regimes. However, the interaction of institutional quality and exchange rates has, in the most plausible specifications, a negative impact on inflation. This suggests that fixed exchange rates exert at most a contingent effect on inflation, and indicates that countries in Eastern Europe and Latin America contemplating currency pegs would be better off improving institutional quality prior to adopting the euro or dollar and expecting a large subsequent disinflationary effect.

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Citation
Jackson, A. & Miles, W. Rev World Econ (2008) 144: 538
Publisher
Springer
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ISSN
1610-2878
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