Exchange rate policy under sovereign default risk
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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- 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.
- Uribe, Martin, 2006.
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- 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.
- Andreas Schabert, 2011. "Exchange Rate Policy under Sovereign Default Risk," Tinbergen Institute Discussion Papers 11-027/2, Tinbergen Institute.
- Anastasia Guscina & Olivier Jeanne, 2006. "Government Debt in Emerging Market Countries; A New Data Set," IMF Working Papers 06/98, International Monetary Fund.
- Schabert, Andreas, 2010. "Monetary policy under a fiscal theory of sovereign default," Journal of Economic Theory, Elsevier, vol. 145(2), pages 860-868, March.
- Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
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