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To peg or not to peg?: A simple model of exchange rate regime choice in small economies

  • Berger, Helge
  • Jensen, Henrik
  • Schjelderup, Guttorm

The choice of an exchange rate peg often points to a trade-off between gaining credibility and losing flexibility. We show that the flexibility loss may be reduced if domestic and foreign shocks are coorelated and more volatile. Allowing for a plausible structural change after a peg, a flexibility gain may result.

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File URL: http://www.sciencedirect.com/science/article/B6V84-443JYPF-5/2/74bd0ff8f02ec82b452c577770fc7478
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 73 (2001)
Issue (Month): 2 (November)
Pages: 161-167

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Handle: RePEc:eee:ecolet:v:73:y:2001:i:2:p:161-167
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Adam Posen, 1995. "Central bank independence and disinflationary credibility: a missing link?," Staff Reports 1, Federal Reserve Bank of New York.
  2. Persson, T. & Tabellini, G., 1997. "Political Economics and Macroeconomic Policy," Papers 630, Stockholm - International Economic Studies.
  3. Garber, P.M. & Svensson, L.E.O., 1994. "The Operation and Collapse of Fixed Exchange Rate Regimes," Papers 588, Stockholm - International Economic Studies.
  4. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing And The General Equilibrium Dynamics Of Money And Output," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 655-690, May.
  5. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  6. Stanley Fischer, 1995. "Modern Approaches to Central Banking," NBER Working Papers 5064, National Bureau of Economic Research, Inc.
  7. Helge Berger & Jan-Egbert Sturm & Jakob de Haan, 2000. "An Empirical Investigation into Exchange Rate Regime Choice and Exchange Rate Volatility," CESifo Working Paper Series 263, CESifo Group Munich.
  8. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  9. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 1-82.
  10. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, June.
  11. Hutchison, M M & Walsh, C E, 1998. "The Output-Inflation Tradeoff and Central Bank Reform: Evidence from New Zealand," Economic Journal, Royal Economic Society, vol. 108(448), pages 703-25, May.
  12. Genberg, Hans, 1989. " Exchange Rate Management and Macroeconomic Policy: A National Perspective," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(2), pages 439-69.
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