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How tight should one's hands be tied? Fear of floating and credibility of exchange regimes Author info | Abstract | Publisher info | Download info | Related research | Statistics Jesús Rodríguez López () (Department of Economics, Universidad Pablo de Olavide)
Hugo Rodríguez Mendizábal () (Department of Economics, Universidad Autónoma de Barcelona)
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The literature on exchange regimes has recently observed that officially self-declared free floaters strongly intervene their nominal exchange rates to maintain them within some unannounced bands. In this paper, we provide an explanation for this behavior, labeled by Calvo and Reinhart (2002) as fear of floating. First, we analyze the linkages between the credibility of the exchange regime, the volatility of the exchange rate and the band width of fluctuation. Second, the model is used to understand the reduction in volatility experienced by most ERM countries after their target zones were widened on August 1993. Finally, solving the model for a subgame perfect equilibrium, fear of floating can be viewed as the credible choice of a finite non-zero band
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Paper provided by Universidad Pablo de Olavide, Departamento de Economía in its series Working Papers with number
06.03.
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Length: 36 pages
Date of creation: Mar 2006Date of revision:
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Keywords: Fear of floating target zones exchange rate arrangements credibility Other versions of this item:
Find related papers by JEL classification: E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies F31 - International Economics - - International Finance - - - Foreign Exchange F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Jesús RodrÃguez-López & Hugo Rodriguez Mendizabal, 2006.
"How Tight Should One's Hands be Tied? Fear of Floating and the Credibility of Exchange Rate Regimes ,"
Topics in Macroeconomics ,
Berkeley Electronic Press, vol. 6(1), pages 1401-1401.
[Downloadable!] (restricted)
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