Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171509
Authors: 
Grimm, Oliver
Year of Publication: 
2007
Series/Report no.: 
Economics Working Paper Series 07/66
Abstract: 
In economic discussions, currency board systems are frequently described as arrangements with self-binding character to the monetary authorities by their strict rules and establishments by law. Hard pegs and especially currency boards are often seen as remedies to overcome economic and financial turmoils and to return to low inflation. A sustainable debt level closely linked to a disciplined fiscal policy is, however, a premise for medium-term success. We show in a two-period model that the choice of a currency board can increase fiscal discipline compared to a standard peg regime. We derive, furthermore, the conditions for a currency boards to gain a stability advantage compared to a common peg system.
Subjects: 
currency board
fixed exchange rate
commitment
inflation bias
fiscal discipline
public debt
time-inconsistency problem
JEL: 
E52
E58
E62
F33
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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