NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Fixed Exchange Rates, Inflation and Macroeconomic Discipline

Sebastian Edwards, Fernando J. Losada

NBER Working Paper No. 4661
Issued in February 1994
NBER Program(s):   IFM

We use data from Guatemala and Honduras to investigate some implications of the Purchasing Power Parity theory over the long run. In particular, we address two questions. First, to what extent did the fixed exchange rate regime impose macroeconomic discipline on these countries. Second, what was the impact of terms of trade shocks and growth differentials on inflation rate differentials between those countries and the United States. We found that the fixed parities regime worked properly until the mid-1970s, providing some constraint on central bank behavior. However, the evidence suggests that the fixed exchange rate system was not sufficient to avoid inflation outbursts and balance of payments crises. Specifically, it was unable to accommodate large negative terms of trade shocks in the late 1970s and early 1980s.

download in pdf format
   (505 K)

email paper

This paper is available as PDF (505 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Users who downloaded this paper also downloaded these:
Edwards w4320 Exchange Rates, Inflation and Disinflation: Latin American Experiences
Aizenman, Hutchison, and Noy w14561 Inflation Targeting and Real Exchange Rates in Emerging Markets
Edwards w12163 The Relationship Between Exchange Rates and Inflation Targeting Revisited
Edwards w5756 The Determinants of the Choice between Fixed and Flexible Exchange-Rate Regimes
Garber and Svensson w4971 The Operation and Collapse of Fixed Exchange Rate Regimes
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us