A note on the credibility of Bank-Run-Preventing Devaluation policies
In this note I provide a notion of a credible devaluation policy in the context of the Chang and Velasco (2000) model. I show that when the long term asset is illiquid enough a flexible exchange rate policy is credible. It is also shown that there exists a non-trivial range for the liquidation value of the long term investment technology for which the same policy is not credible. Finally I propose a different flexible exchange rate regime which is shown to be credible.
Volume (Year): XLVIII (2002)
Issue (Month): 1-2 (January-December)
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