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Exchange rate policy under sovereign default risk

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  • Schabert, Andreas

Abstract

We examine monetary policy options for a small open economy where sovereign default might occur due to intertemporal insolvency. Under interest rate policy and floating exchange rates the equilibrium is indetermined. Under a fixed exchange rate the equilibrium is uniquely determined and independent of sovereign default.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 112 (2011)
Issue (Month): 2 (August)
Pages: 179-181

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Handle: RePEc:eee:ecolet:v:112:y:2011:i:2:p:179-181

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Exchange rate peg Interest rate policy Equilibrium determination Sovereign default Public debt;

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References

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  1. Schabert, Andreas, 2011. "Exchange rate policy under sovereign default risk," Economics Letters, Elsevier, vol. 112(2), pages 179-181, August.
  2. Martin Uribe, 2002. "A Fiscal Theory of Sovereign Risk," NBER Working Papers 9221, National Bureau of Economic Research, Inc.
  3. Daniel, Betty C., 2001. "The fiscal theory of the price level in an open economy," Journal of Monetary Economics, Elsevier, vol. 48(2), pages 293-308, October.
  4. Schabert, Andreas, 2010. "Monetary policy under a fiscal theory of sovereign default," Journal of Economic Theory, Elsevier, vol. 145(2), pages 860-868, March.
  5. Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer, vol. 4(3), pages 381-99.
  6. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  7. Anastasia Guscina & Olivier Jeanne, 2006. "Government Debt in Emerging Market Countries," IMF Working Papers 06/98, International Monetary Fund.
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Cited by:
  1. Zongjun Wang & Gongkhonkwa Rujira, 2013. "The Dynamic Relationship of Stock Indexes on Interbank Money Market Rates: Evidence from Thailand," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 827 - 843.
  2. Schabert, Andreas, 2011. "Exchange rate policy under sovereign default risk," Economics Letters, Elsevier, vol. 112(2), pages 179-181, August.

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