Exchange Rates, Monetary Aggregates, and Inflation

This article is an examination of the distribution of the types of exchange-rate policy and of monetary policy that are in use in 2011. Exchange rate systems range from free floating, in which intervention occurs only exceptionally, to hard pegs, in which a country has no monetary sovereignty. Monetary policy systems include exchange rate anchors, monetary aggregate targets, and inflation targets. Large economies are likely to use floating régimes and inflation targets. Small economies are likely to use hard pegs, which require the use of an exchange rate anchor, or soft pegs, which are likely to be combined with monetary aggregate targeting