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Collapse of a Crawling Peg Regime in the Presence of a Government Budget Constraint

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  • Miguel A. Savastano

    (International Monetary Fund)

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    Abstract

    The dynamics of the collapse of a crawling exchange rate in the presence of an explicit link between the fiscal deficit and domestic credit is investigated. Such an exchange rate regime is generally characterized by two potential steady-state equilibria, which introduce an ex ante indeterminacy in the timing and magnitude of a speculative attack on international reserves in the presence of a sustained inconsistency between the country's fiscal and exchange rate policies. The paper discusses the conditions that define the actual timing of the regime's breakdown.

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

    Volume (Year): 39 (1992)
    Issue (Month): 1 (March)
    Pages: 79-100

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    Handle: RePEc:pal:imfstp:v:39:y:1992:i:1:p:79-100

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    Cited by:
    1. Joanna Siwinska-Gorzelak, 2000. "Currency Crises and Fiscal Imbalances. The Transition Countries Perspective," CASE Network Studies and Analyses 0219, CASE-Center for Social and Economic Research.
    2. Barabás, Gyula, 1996. "Kamatparitás lebegő és csúszó leértékeléses árfolyamrendszerben
      [Interest parity in floating and in crawling-peg foreign exchange rate régimes]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 972-994.
    3. Kopits, György, 1995. "Az előre bejelentett csúszó árfolyamrendszer Magyarországon
      [Preannounced crawlling peg regime in Hungary]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 797-818.
    4. Giancarlo Marini & Giovanni Piersanti, 2012. "Models of Speculative Attacks and Crashes in International Capital Markets," CEIS Research Paper 245, Tor Vergata University, CEIS, revised 24 Jul 2012.
    5. Amato, Amedeo & Tronzano, Marco, 2000. "Fiscal policy, debt management and exchange rate credibility: Lessons from the recent Italian experience," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 921-943, June.

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