Foreign currency and inflation indexed debt issuance2009

This paper studies the impact of exchange rate regimes on inflation, nominal money growth, real interes rates, and GDP growth. We find that, for nonindustrial economies, long pegs (lasting five or more years) are associated with lower inflation than floats, but at the cost of slower growth. A similar trade-off between inflation and groth is still present in the case of hard pegs (currency boards and economies without separate legal tender), whose growth performance does not differ significantly from that of conventional pegs. In contrast, short pegs clearly underperform floats, as they grow slower without providing any gains in terms of inflation.