Assessing the impact of different nominal anchors on the credibility of stabilisation programmes

The paper compares the impact of announcing exchange rate-based versus money-based stabilisation programmes in a time series cross-section of countries. The analysis finds that, on average, the effect of announcing exchange rate-based programmes is more credible, in terms of reducing inflation inertia, than the outcome associated with money-based programmes. The econometric analysis is robust to augmenting the benchmark inflation model with measures of the size of IMF-programme loans and the timing of government elections. The paper also finds that the gap between the magnitudes of the impacts from pursuing the different strategies has been falling since the 1970s. The trend seems compatible with the much debated Great Moderation in advanced economies and similar developments in economies around the world.