A great deal of attention has been focused recently on the impact of exchan
ge rate regimes, just as previous empirical research examined central bank
autonomy and announced targets for domestic monetary policy. To date, howev
er, these three elements of monetary frameworks have been assessed in isola
tion from one another, and all have been viewed in terms of a unidimensiona
l spectrum of fixity versus flexibility. Using a newly constructed dataset,
this paper jointly analyses and compares all three elements' effects on in
flation and exchange rate behaviour. The results show that each of the thre
e elements has independent and distinct effects on nominal outcomes. Key fi
ndings include: (1) although hard pegs do tend to reduce inflation and atte
nuate exchange rate fluctuations within some range, they are clearly charac
terized by large devaluations (2) central bank autonomy is associated with
a more stable exchange rate and lower inflation; and (3) explicit inflation
targeting reduces both inflation and its persistence, consistent with the
view that inflation targeting increases flexibility through transparency. T
hese results raise the possibility that a combination of central bank auton
omy, inflation targeting, and a free float might offer the same benefits as
any intermediate exchange rate regime on its own, without the proclivity t
o occasional large depreciations. Copyright (C) 2001 Institute for Internat
ional Economics and Federal Reserve Bank of New York.