Undergraduate Economic Review
Abstract
The bipolar view of unsustainable intermediate exchange rate regimes transitioning into the corners of hard pegs and free floats has attracted much attention and criticism in recent times. While highly mobile capital is argued to render intermediate regimes unsustainable by the virtues of the impossible trinity (Fischer 2001), the prevalent “fear of floating” can eliminate the flexible pole of the bipolar view for developing countries (Calvo and Reinhart 2000). This paper employs four-way, de jure and de facto exchange rate classifications to compare the performance of hard pegged exchange rate regimes – currency boards in particular – against that of soft (adjustable) pegs, hard (heavy intervention) floats, and free floats. The conclusion from the analysis is that hard pegs offer exceptional inflation performance even when accounting for possible endogeneity of regime choice. Furthermore, hard pegged regimes stand out as the least crisis prone, while maintaining steady growth comparable to that of free floats.
Recommended Citation
Mandadjiev, Ivo
(2005)
"Inflation, Growth and Crisis Performance of Hard Pegged Exchange Rate Regimes,"
Undergraduate Economic Review: Vol. 1:
Iss.
1, Article 3.
Available at:
https://digitalcommons.iwu.edu/uer/vol1/iss1/3