Economics, Econometrics and Finance
4 years ago

Soft pegs in exchange rate regimes linked to lower inflation rates.

RePEc: Research Papers in Economics
Effective Exchange Rate Regimes and Inflation
Philipp Harms, Jakub Knaze

Paper Summary

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The study introduces a new way to classify exchange rate regimes, taking into account relationships with multiple currencies. They found that fixed exchange rate regimes, including soft pegs, are linked to lower inflation rates compared to freely floating regimes. This challenges the idea that soft pegs don't affect price stability. The impact of fixing the exchange rate on reducing inflation is as strong as having an official inflation target.