Real Exchange Rate Variability under Pegged and Floating Nominal Exchange Rate Systems: An Equilibrium Theory
This paper proposes a new explanation for the greater variability of real exchange rates under pegged than under floating nominal exchange rate systems. The explanation hinges on the propensity of governments to use international trade restrictions and financial restrictions for balance-of-payments purposes under pegged exchange rates. In particular. these restrictions become more likely during periods of time when countries suffer losses of international reserves than might. without policy changes. lead to a balance-of-payments crisis. This covariation of restrictions with reserve changes implies that real exchange rates will vary less under pegged than under floating exchange rates.
|Date of creation:||Apr 1988|
|Date of revision:|
|Publication status:||published as Carnegie-Rochester Conference Series on Public Policy, Vol. 29, pp. 259-294 , (Autumn 1988).|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.orgEmail:
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2565. 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: ()
If references are entirely missing, you can add them using this form.