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Author: | Bensaid, B. Jeanne, O. |
Title: | Self-fulfilling currency crises and central bank independence |
Journal: | Scandinavian Journal of Economics
2000 : VOL. 102:4, p. 605-620 |
Index terms: | CENTRAL BANK INDEPENDENCE CURRENCY FINANCIAL POLICY UNEMPLOYMENT |
Language: | eng |
Abstract: | The authors develop a model of a fixed exchange rate peg arrangement derived from the Barro-Gordon model of rules versus discretion. It is shown that the fixed peg is vulnerable to self-fulfilling currency crises in which the unemployment rate increases, the credibility of the rule decreases, but, paradoxically, the reputation of the policy-maker improves. Delegating monetary policy to an independent central banker does not prevent this type of crisis from arising, and can even make it more costly. |
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