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Exchange rate policy of Austria and Finland: Two examples of a peg

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  • Hochreiter, Eduard
  • Knöbl, Adalbert

Abstract

In this paper the evolution and experiences of exchange rate strategies in Austria and Finland are analyzed. Following Finland's change of emphasis in the 1980's, both countries now use the exchange rate to achieve low inflation. Experience shows that achieving credibility takes time and is not costless. Austria's policy now seems to be fully credible, but the ultimate test for Finnish exchange rate policy is still to come. The exchange rate peg gives some limited independence for fiscal policy, but it needs to secure a sustainable current account in the medium term. Fixing the exchange rate does not imply the import of unemployment from the center country(ies). Finally, the choice of the peg determines the inflation path but not developments in the real economy.

Suggested Citation

  • Hochreiter, Eduard & Knöbl, Adalbert, 1991. "Exchange rate policy of Austria and Finland: Two examples of a peg," Bank of Finland Research Discussion Papers 12/1991, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp1991_012
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    1. repec:zbw:bofrdp:1991_005 is not listed on IDEAS
    2. Argy, V. & Mckibbin, W. & Siegloff, E., 1989. "Exchange Rate Regimes For Small Economy In A Multi-Country World," Princeton Studies in International Economics 67, International Economics Section, Departement of Economics Princeton University,.
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    4. Jacob A. Frenkel & Assaf Razin, 1987. "The Mundell-Fleming Model a Quarter Century Later: A Unified Exposition," IMF Staff Papers, Palgrave Macmillan, vol. 34(4), pages 567-620, December.
    5. Saarenheimo, Tuomas, 1991. "Rahoitusvirtamallit ja kotitalouksien portfoliovalinta," Research Discussion Papers 5/1991, Bank of Finland.
    6. M. June Flanders & Elhanan Helpman, 1979. "An Optimal Exchange Rate Peg in a World of General Floating," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 46(3), pages 533-542.
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