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Exchange Rate Unification Under Non-Credibility: The Haïtian Economy

  • Kathleen Dorsainvil

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    This paper builds on three strands of literature—Early Warning Systems (EWS), parallel exchange rates, and collapsing exchange rate regimes—by addressing the issue of credibility in the context of unification of the exchange rate in the Haïtian economy. It takes the view that when policymakers are perceived as non-credible, economic agents resort to observation of the economy's performance to assess the imminence of reforms. They then readjust their own behavior, particularly in the area of asset holdings. This paper models the adjustment process using the EWS ratios. Data supports the idea that credibility of the reform mounts over time reaching 85 percent on the eve of the reform. Copyright Springer Science+Business Media, Inc. 2006

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    File URL: http://hdl.handle.net/10.1007/s11294-006-9006-6
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    Article provided by International Atlantic Economic Society in its journal International Advances in Economic Research.

    Volume (Year): 12 (2006)
    Issue (Month): 2 (May)
    Pages: 229-240

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    Handle: RePEc:kap:iaecre:v:12:y:2006:i:2:p:229-240
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    1. Rose, A.K. & Svensson, L.E.O., 1993. "European Exchange Rate Credibility Before the Fall," Papers 542, Stockholm - International Economic Studies.
    2. Guillermo A. Calvo & Enrique G. Mendoza, 1994. "Trade Reforms of Uncertain Duration and Real Uncertainty: A First Approximation," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 555-586, December.
    3. Cukierman, A. & Liviatan, N., 1989. "Optimal Accommodation By Strong Policymakers Under Incomplete Information," Papers 13-89, Tel Aviv.
    4. Robert J. Barro, 1986. "Reputation in a Model of Monetary Policy with Incomplete Information," NBER Working Papers 1794, National Bureau of Economic Research, Inc.
    5. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency crashes in emerging markets: an empirical treatment," International Finance Discussion Papers 534, Board of Governors of the Federal Reserve System (U.S.).
    6. Ruge-Murcia, Francisco J, 1995. "Credibility and Changes in Policy Regime," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 176-208, February.
    7. Anthony, Myrvin & MacDonald, Ronald, 1998. "On the mean-reverting properties of target zone exchange rates: Some evidence from the ERM," European Economic Review, Elsevier, vol. 42(8), pages 1493-1523, September.
    8. Stock, James H & Watson, Mark W, 1988. "Variable Trends in Economic Time Series," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 147-74, Summer.
    9. Baxter, Marianne, 1985. "The role of expectations in stabilization policy," Journal of Monetary Economics, Elsevier, vol. 15(3), pages 343-362, May.
    10. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    11. Paul R. Masson & Allan Drazen, 1994. "Credibility of Policies Versus Credibility of Policymakers," IMF Working Papers 94/49, International Monetary Fund.
    12. Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997. "Leading indicators of currency crises," Policy Research Working Paper Series 1852, The World Bank.
    13. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
    14. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
    15. Dorsainvil, Kathleen, 2001. "The parallel market as a policy instrument in collapsing exchange rate regimes," Journal of Economics and Business, Elsevier, vol. 53(1), pages 27-43.
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