Credibility and adjustment: gold standards versus currency boards

It is often maintained that currency boards (CBs) and gold standards (GSs) are alike in that they are stringent monetary rules, the two basic features of which are high credibility of monetary authorities and the existence of automatic adjustment (non discretionary) mechanism. This article includes a comparative analysis of these two types of regimes both from the perspective of the sources and mechanisms of generating confidence and credibility, and the elements of operation of the automatic adjustment mechanism. Confidence under the GS is endogenously driven, whereas it is exogenously determined under the CB. CB is a much more asymmetric regime than GS (the adjustment is much to the detriment of peripheral countries) although asymmetry is a typical feature of any monetary regime. The lack of credibility is typical for peripheral countries and cannot be overcome completely even by “hard” monetary regimes.http://deepblue.lib.umich.edu/bitstream/2027.42/40078/3/wp692.pd

Human Capital and the Quality of Education in a Poverty Trap Model

This paper presents a model of a poverty trap that is caused by an unequal initial income and human capital distribution, and differences in the quality of education between children from the more and less advantaged social sectors. Under certain conditions, the economy converges to a situation with three stable and simultaneous equilibria, two of which constitute poverty traps, lowering the economy’s current and steady-state aggregate output level as well as its growth rate. The model suggests that a policy oriented to equalizing the quality of education would, in the long run, have potential in reducing initial inequalities