How Does Learning Affect Inflation After a Shift in the Exchange Rate Regime?

June 1, 1994

Preview Citation

Format: Chicago

Laura Papi. How Does Learning Affect Inflation After a Shift in the Exchange Rate Regime?, (USA: International Monetary Fund, 1994) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyzes the consequences of a shift from a floating to a pegged exchange rate regime on the actual and expected inflation rate, in an environment of asymmetric information. Policymaking is endogenous and the public learns rationally. There are two main findings. First, there is a “honeymoon effect” after the regime change, where inflation is lower than in the long run. Second, the asymmetric information outcome converges to that of symmetric information in the long run.

Subject: Exchange rate arrangements, Exchange rates, Inflation, Purchasing power parity, Real exchange rates

Keywords: Exchange rate, Inflation rate, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1994/070
Stock No:

WPIEA0701994
ISBN:

9781451960372
ISSN:

1018-5941

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