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Janssen, Ole
Rohde, Armin
Year of Publication: 
Series/Report no.: 
Wirtschaftswissenschaftliche Diskussionspapiere 02/2002
Abstract (Translated): 
The rule bounded currency board-system is a contribution to a process of convergence between the price level of the currency board-country and the anchor currency-country. However this strategy includes the risk of an inadequate provision with liquidity in the currency board-country. In the long run this corresponds to the risk of increasing the structural unemployment. Keeping up the currency board-principle of a sufficient reserve backing, the orientation of the monetary expansion to the inevitable inflation rate may reduce this risk. However it also raises the risk of a reduced credibility concerning monetary policy and price level stability. In conclusion there exists a trade-off between the credib ility of monetary discipline and therefore price level stability, and the monetary flexibility and employment and therefore the credibility of keeping up the currency board-system in the long run.
Document Type: 
Working Paper

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