This paper studies the political economy of realignments to fixed exchange rates and suggests that the use of realignments is less likely when there are political benefits from stable exchange rates and when linkages across other issue areas increase the costs of realignment. More specifically...

Exchange rate policy results not just from economic, but also from fundamentally political processes. This paper analyzes the propensity of policy makers to relax fixed exchange rate regimes by performing regular realignments. The argument is that when information is scarce as in transition...

Theory and empirical evidence show that low inflation is a precondition for economic growth. Independent central banks and fixed exchange rates are institutional mechanisms that help keep in ation low by lending monetary policy credibility to governments. However, the two institutions are...