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Fiscal Policies and the Choice of Exchange Rate Regime

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  • Grilli, Vittorio

Abstract

A common argument against either a monetary union or a regime of fixed exchange rates is that they preclude flexible use of the inflation tax. We address this point of view by comparing three alternative exchange rate regimes: a pure float, an EMS regime in which the exchange rate is fixed but can be realigned, and a monetary union. We model the three regimes as alternative commitments on future seigniorage policies. The approach suggests that it is not possible to Pareto-rank the three regimes. On the other hand, we provide intuitive conditions under which each of the systems is superior to the others.

Suggested Citation

  • Grilli, Vittorio, 1992. "Fiscal Policies and the Choice of Exchange Rate Regime," CEPR Discussion Papers 631, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:631
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    Cited by:

    1. Bordo, Michael D. & Jonung, Lars, 1994. "Monetary Regimes, Inflation and Monetary Reform: An Essay in Honor of Axel Leijonhufvud," SSE/EFI Working Paper Series in Economics and Finance 16, Stockholm School of Economics.

    More about this item

    Keywords

    Exchange Rate; Fiscal Policy; Seignorage;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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