Skip to main content
Log in

Fixed Exchange Rates and Disinflation in Emerging Markets: How Large Is the Effect?

  • Published:
Review of World Economics Aims and scope Submit manuscript


We examine developing countries which have institutional quality ratings for the effects of exchange rate rigidity on inflation. The level of institutional development exerts no effect on the impact of currency regimes. However, the interaction of institutional quality and exchange rates has, in the most plausible specifications, a negative impact on inflation. This suggests that fixed exchange rates exert at most a contingent effect on inflation, and indicates that countries in Eastern Europe and Latin America contemplating currency pegs would be better off improving institutional quality prior to adopting the euro or dollar and expecting a large subsequent disinflationary effect.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Similar content being viewed by others


  1. Angrist, J., and A. Krueger (2001). Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments. Journal of Economic Perspectives 15 (4): 69–85.

    Google Scholar 

  2. Arteta, C., B. Eichengreen, and C. Wyplosz (2001). When Does Capital Account Openness Help More Than It Hurts? NBER Working Paper 8414. National Bureau of Economic Research, Cambridge, Mass.

  3. Bleaney, M., and D. Fielding (2002). Exchange Rate Regimes, Inflation and Output Volatility in Developing Countries. Journal of Development Economics 68 (1): 233–245.

    Google Scholar 

  4. Bleaney, M., and M. Francisco (2005). Exchange Rate Regimes and Inflation: Only Hard Pegs Make a Difference. Canadian Journal of Economics 38 (4): 1453–1471.

    Google Scholar 

  5. Calvo, G., and F. Mishkin (2003). The Mirage of Exchange Rate Regimes for Emerging Markets. Journal of Economic Perspectives 17 (4): 99–118.

    Google Scholar 

  6. Calvo, G., and C. Reinhart (2002). Fear of Floating. Quarterly Journal of Economics 117 (2): 379–408.

    Google Scholar 

  7. Cukierman, A. (1992). Central Bank Strategy, Credibility and Independence. Cambridge: MIT Press.

  8. Edison, H., M. Klein, L. Ricci, and T. Slok (2004). Capital Account Liberalization and Economic Performance: Survey and Synthesis. IMF Staff Papers 51 (2): 220–256.

  9. Edwards, E., and I. Magendzo (2003a). A Currency of One’s Own? An Empirical Investigation of Dollarization and Independent Currency Unions. NBER Working Paper 9514. National Bureau of Economic Research, Cambridge, Mass.

  10. Edwards, E., and I. Magendzo (2003b). Dollarization and Economic Performance: What Do We Really Know? International Journal of Finance and Economics 8 (4): 351–363.

    Google Scholar 

  11. Eichengreen, B. (2002). When to Dollarize. Journal of Money, Credit and Banking 34 (1): 1–24.

    Google Scholar 

  12. EUBusiness (2004). ECB Chief Trichet Warns Euro Is Not an EU Shortcut for Eastern Europe. November 29, 2004.

  13. Ghosh, A., M. Gulde, and H. Wolf (2000). Currency Boards: More Than a Quick Fix? Economic Policy 15 (31): 269–335.

    Google Scholar 

  14. Ghosh A., M. Gulde, and H. Wolf (2002). Exchange Rate Regimes. Cambridge: MIT Press.

  15. Ghosh, A., M. Gulde, J. Ostry, and H. Wolf (1997). Does the Nominal Exchange Rate Regime Matter? NBER Working Paper 5874. National Bureau of Economic Research, Cambridge, Mass.

  16. Klein, M., and J. Shambaugh (2004). Fixed Exchange Rates and Trade. NBER Working Paper 10696. National Bureau of Economic Research, Cambridge, Mass.

  17. McKinnon, R., and G. Schnabl (2004). The East Asian Dollar Standard, Fear of Floating, and Original Sin. Review of Development Economics 8 (3): 331–360.

    Google Scholar 

  18. Levy-Yeyati, E., and F. Sturzenegger (2003). To Float or To Fix: Evidence on the Impact of Exchange Rate Regimes on Growth. American Economic Review 93 (4): 1173–1193.

    Google Scholar 

  19. Persson, T. (2001). Currency Unions and Trade: How Large Is the Treatment Effect? Economic Policy 16 (33): 433–448.

    Google Scholar 

  20. Reinhart, C., and K. Rogoff (2004). The Modern History of Exchange Rate Arrangements: A Reinterpretation. Quarterly Journal of Economics 119 (1): 1–48.

    Google Scholar 

  21. Rodrik, D. (1998). Who Needs Capital Account Convertibility? Essays in International Economics 207 (May): 55–65.

  22. Rodrik, D., A. Subramanian, and F. Trebbi (2002). Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development. Working Paper, Harvard University.

  23. Romer, D. (1993). Openness and Inflation: Theory and Evidence. Quarterly Journal of Economics 108 (4): 869–903.

    Google Scholar 

  24. Rose, A. (2000). One Money, One Market: The Effect of Common Currencies on Trade. Economic Policy 15 (30): 7–46.

    Google Scholar 

Download references

Author information

Authors and Affiliations


Corresponding author

Correspondence to William Miles.

Additional information

JEL no.

F31, O11

About this article

Cite this article

Jackson, A., Miles, W. Fixed Exchange Rates and Disinflation in Emerging Markets: How Large Is the Effect?. Rev World Econ 144, 538–557 (2008).

Download citation

  • Issue Date:

  • DOI: