NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Fixed Exchange Rates as a Means to Price Stability: What Have We Learned

Lars E.O. Svensson

NBER Working Paper No. 4504 (Also Reprint No. r1907)
Issued in October 1993
NBER Program(s):   IFM

The paper discusses what we have learned from last year's currency crises in ERM and the Nordic countries about fixed exchange rates as a means to achieve price stability. After discussing the explanations for the crises, the paper concludes that fixed exchange rates are not a shortcut to price stability. Monetary stability and credibility have to be built at home and cannot easily be imported from abroad. Fixed exchange rates are more fragile and difficult to maintain than previously thought. They may even be in conflict with price stability, by inducing a procyclical destabilizing monetary policy, and by inducing an inflation bias. Building monetary credibility is even more important with flexible exchange rates.

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Document Object Identifier (DOI): 10.3386/w4504

Published: European Economic Review, vol. 38, no. 1, pp. 447-468, January 1994 EEA Alfred Marshall Lecture citation courtesy of

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