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Title: Fiscal Policies and the Choice of Exchange Rate Regime

Author(s): Vittorio Grilli

Publication Date: March 1992

Keyword(s): Exchange Rate, Fiscal Policy and Seignorage

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Grilli, V. 1992. 'Fiscal Policies and the Choice of Exchange Rate Regime'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=631