Not Complements, But Substitutes: Fixed Exchange Rate Commitments, Central Bank Independence, and External Currency Stability

2008 ◽  
Vol 52 (4) ◽  
pp. 807-824 ◽  
Author(s):  
David H. Bearce
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Central Bank Independence ◽  
Fixed Exchange Rate

scholarly journals Rulers of the game: central bank independence during the interwar years

1996 ◽  
Vol 50 (3) ◽  
pp. 407-443 ◽  
Author(s):  
Beth A. Simmons
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rate Regime ◽  
Central Banks ◽  
Central Bank Independence ◽  
Price Stability ◽  
Left Wing ◽  
Domestic Price ◽  
External Adjustment ◽  
Fixed Exchange Rate

Central bank independence is associated with restrictive monetary choices that can be deflationary within fixed exchange-rate regimes. Because central banks act to counteract domestic inflation, they put a premium on domestic price stability at the expense of international monetary stability. Evidence from fifteen countries between 1925 and 1938 shows that the more independent central banks took more deflationary policies than were necessary for external adjustment. Central banks in general were more restrictive under left-wing governments than they were under more conservative regimes and often were more restrictive than required for external equilibration. This suggests that policies of independent central banks designed to enhance domestic price stability may force deflationary pressures onto other states in the system and potentially destabilize a fixed exchange-rate regime.

scholarly journals The Success of Currency Reforms to End Great Inflations: An Empirical Analysis of 34 High Inflations

2009 ◽  
Vol 10 (2) ◽  
pp. 165-175 ◽  
Author(s):  
Peter Bernholz ◽  
Peter Kugler
Keyword(s):  
Twentieth Century ◽  
Exchange Rate ◽  
Central Bank ◽  
Empirical Analysis ◽  
Probit Model ◽  
Ordered Probit ◽  
Ordered Probit Model ◽  
Market Economies ◽  
Fixed Exchange Rate ◽  
Currency Reform

Abstract The estimation of an ordered probit model for currency reforms attempting to end 31 hyperinflations and three huge inflations of the twentieth century shows that the introduction of an independent central bank and the adoption of a credibly fixed exchange rate are crucial for the success of a currency reform. In addition, currency reforms are demonstrated to be more difficult in centrally planned economies than in market economies.

Brazilian Inflation from 1980 to 1993: Causes, Consequences and Dynamics

1996 ◽  
Vol 28 (3) ◽  
pp. 635-666 ◽  
Author(s):  
G. Tullio ◽  
M. Ronci
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Central Bank Independence ◽  
Budget Deficits ◽  
The Government ◽  
Exchange Rate Shocks

AbstractThis article focuses on Brazilian inflation: its causes, consequences and dynamics from 1980 to 1993. We argue that the main economic cause of the Brazilian inflation was the excessive growth of money, in turn caused by too high budget deficits. Oil and exchange rate shocks also played a role, together with the greater dependence of the Central Bank of Brazil on the government. We measure the degree of Central Bank independence by the variable ‘turnover’ of Central Bank governors defined as the number of months in office. The effect of this variable on inflation is found to be highly significant and positive.

scholarly journals International Monetary Frameworks

2021 ◽  
pp. 101-121
Author(s):  
Ulrich Bindseil ◽  
Alessio Fotia
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Foreign Currency ◽  
Balance Sheet ◽  
Lender Of Last Resort ◽  
Balance Sheets ◽  
Fixed Exchange Rate ◽  
International Monetary Arrangements ◽  
Recent Developments ◽  
Bank Balance Sheets

AbstractIn this chapter we turn to representing flows of funds in alternative international monetary frameworks, and what global liquidity these different frameworks provide. We first recall some arguments in favour of and against fixed exchange rate systems. We then introduce two international monetary arrangements of the past which imply fixed exchange rates, namely the gold standard and the Bretton Woods system, and recall why both eventually failed. We then turn to three international monetary frameworks in the context of the current paper standard, i.e. fixed exchange rate systems, flexible exchange rate systems, and the European monetary union. We explain the role of an international lender of last resort and related solutions, and how these allow for more leeway in running fixed exchange rate systems. We also show how banks and central bank balance sheets are affected by international flows of funds and the balance of payments. Finally, we briefly review recent developments of foreign currency reserves, being the key central bank balance sheet position in this context.

In Search of an Anchor

2020 ◽  
pp. 251-274
Author(s):  
Einar Lie
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Executive Board ◽  
Inflation Target ◽  
Stable Level ◽  
Fixed Exchange Rate ◽  
The Government ◽  
New Guidelines

This chapter details how, in 1993, Norges Bank argued in favour of supplementing the fixed exchange rate target, and in 1997 in favour of replacing it with an inflation target, with a view to maintaining inflation at a low and stable level. The introduction of an inflation target provided Norges Bank with greater scope for the exercise of independent judgement. Controversial increases in the policy rate in 2000 and 2002 demonstrated that Norges Bank was willing to use its increased independence. Moreover, amendments to the Norges Bank Act in 2003 weakened the scope of action available to the government and parliament to influence the bank’s decisions, and the Executive Board largely became a council of economic experts. In addition, Norway’s slightly inefficient central bank organization underwent major changes, with extensive outsourcing of non-core tasks, as defined by the new guidelines.

The Effectiveness of Monetary Policy Anchors: Firm-Level Evidence

2010 ◽  
Vol 64 (4) ◽  
pp. 695-717 ◽  
Author(s):  
J. Lawrence Broz ◽  
Michael Plouffe
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Private Sector ◽  
Central Bank ◽  
Inflation Targeting ◽  
Substantial Reduction ◽  
Central Bank Independence ◽  
Inflation Expectations ◽  
Firm Level ◽  
Level Data

AbstractAnalyses of monetary policy posit that exchange-rate pegs, inflation targets, and central bank independence can help anchor private-sector inflation expectations. Yet there are few direct tests of this argument. We offer cross-national, micro-level evidence on the effectiveness of monetary anchors in controlling private-sector inflation concerns. Using firm-level data from eighty-one countries (approximately 10,000 firms), we find evidence that “international” anchors (exchange-rate commitments) correlate significantly with a substantial reduction in private-sector concerns about inflation while “domestic” anchors (inflation targeting and central bank independence) do not. Our conjecture is that private-sector inflation expectations are more responsive to exchange-rate anchors because they are more transparent, more constraining, and more costly than domestic anchoring arrangements.

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