IDEAS home Printed from
   My bibliography  Save this paper

A Model of a Double Standard Exchange Rate System


  • Riku Kinnunen

    () (University of Liverpool)


In this paper I propose a "double standard" fixed exchange rate system which will be shown to have a higher expected lifetime than a conventional fixed exchange rate system. I present a simple variant of the classic Flood-Garber-Krugman model where the domestic currency is pegged to one of the two foreign currencies, depending on which exchange rate is lower; intuitively, this system thus corresponds to a gradual inflation stabilization program which will start at a future time that is determined by the foreign exchange market instead of the government. This type of a conditional peg implies that the domestic money holdings have a higher expected return as compared with the standard fixed exchange rate system. Since at each period there is a non-zero probability for the appreciation of the domestic currency, the demand for it is thus higher which decreases the probability of a speculative attack and increases the expected lifetime of the fixed exchange rate.

Suggested Citation

  • Riku Kinnunen, 2003. "A Model of a Double Standard Exchange Rate System," Research Papers 2003_05, University of Liverpool Management School.
  • Handle: RePEc:liv:livedp:2003_05

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    speculative attacks; fixed exchange rates;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:liv:livedp:2003_05. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Simon Blackman). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.