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The Mechanics of a successful Exchange-Rate Peg: Lessons from Emerging Markets

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To the surprise of many market watchers, Thailand's exchange-rate peg to the dollar collapsed in July 1997, leading to similar rounds of currency devaluations in other East Asian countries. This study seeks to determine if there were identifiable contrasts in implementation between Thailand's peg and a perennially successful peg- Austria's to the Deutsche Mark- that would have hinted at problems for Thailand prior to July 1997. the comparison suggests that Thailand was not sufficently vigilant about keeping its inflation rate low in the early 1990s. By 1995, Thailand faced a situation where a tight monetary policy involving high domestic interet rates would not always have created disinflationary pressure, as high interest rates also tended to attract greater capital inflow to Thailand. In this environment, Thailand's monetary policy became erratic and failed to maintain the exchange-rate peg.

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Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 01.02.

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Length: 36 pages
Date of creation: Apr 2001
Date of revision:
Handle: RePEc:szg:worpap:0102

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  1. Dueker, Michael & Fischer, Andreas M, 2000. "Austria's Hard-Currency Policy: The Mechanics of Successful Exchange-Rate Peg," CEPR Discussion Papers 2478, C.E.P.R. Discussion Papers.
  2. Ricardo Hausmann & Ugo Panizza & Ernesto H. Stein, 2000. "Why Do Countries Float the Way They Float?," Research Department Publications 4205, Inter-American Development Bank, Research Department.
  3. Corsetti, G. & Pesenti, P. & Roubini, N., 1998. "What Caused the Asian Currency and Financial Crisis?," Papers 343, Banca Italia - Servizio di Studi.
  4. Michael J. Dueker & Andreas M. Fischer, 1998. "A guide to nominal feedback rules and their use for monetary policy," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 55-63.
  5. Flood, Robert P & Rose, Andrew K, 1999. "Understanding Exchange Rate Volatility without the Contrivance of Macroeconomics," Economic Journal, Royal Economic Society, vol. 109(459), pages F660-72, November.
  6. Eduard HOCHREITER & Georg WINCKLER, 1993. "The Advantages of Tying Austria's Hands: The Success of the Hard Currency Strategy," Vienna Economics Papers vie9307, University of Vienna, Department of Economics.
  7. Michael Dueker & Andreas M. Fischer, 1995. "Inflation targeting in a small open economy: empirical results for Switzerland," Working Papers 1995-014, Federal Reserve Bank of St. Louis.
  8. von Hagen, J, 1995. "Inflation and Monetary Targeting in Germany," Papers 03, American Institute for Contemporary German Studies-.
  9. Reinhart, Carmen & Calvo, Guillermo, 2001. "Fixing for your life," MPRA Paper 13873, University Library of Munich, Germany.
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Cited by:
  1. Michael J. Dueker & Andreas M. Fischer, 2006. "Do inflation targeters outperform non-targeters?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 431-450.
  2. Andrea Bubula & Inci Ötker, 2003. "Are Pegged and Intermediate Regimes More Crisis Prone?," IMF Working Papers 03/223, International Monetary Fund.
  3. Syed Kumail Abbas Rizvi & Bushra Naqvi & Nawazish Mirza, 2013. "Choice of Anchor Currencies and Dynamic Preferences for Exchange Rate Pegging in Asia," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(2), pages 37-49, July-Dec.

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