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The Mechanics of a successful Exchange-Rate Peg: Lessons from Emerging Markets

To the surprise of many market watchers, Thailand's exchange-rate peg to the dollar collapsed in July 1997, leading to similar rounds of currency devaluations in other East Asian countries. This study seeks to determine if there were identifiable contrasts in implementation between Thailand's peg and a perennially successful peg- Austria's to the Deutsche Mark- that would have hinted at problems for Thailand prior to July 1997. the comparison suggests that Thailand was not sufficently vigilant about keeping its inflation rate low in the early 1990s. By 1995, Thailand faced a situation where a tight monetary policy involving high domestic interet rates would not always have created disinflationary pressure, as high interest rates also tended to attract greater capital inflow to Thailand. In this environment, Thailand's monetary policy became erratic and failed to maintain the exchange-rate peg.

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Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 01.02.

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Length: 36 pages
Date of creation: Apr 2001
Date of revision:
Handle: RePEc:szg:worpap:0102
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  1. Dueker, Michael & Fischer, Andreas M, 2000. "Austria's Hard-Currency Policy: The Mechanics of Successful Exchange-Rate Peg," CEPR Discussion Papers 2478, C.E.P.R. Discussion Papers.
  2. Michael J. Dueker & Andreas M. Fischer, 1995. "Inflation targeting in a small open economy: empirical results for Switzerland," Working Papers 1995-014, Federal Reserve Bank of St. Louis.
  3. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
  4. von Hagen, J, 1995. "Inflation and Monetary Targeting in Germany," Papers 03, American Institute for Contemporary German Studies-.
  5. Michael J. Dueker & Andreas M. Fischer, 1998. "A guide to nominal feedback rules and their use for monetary policy," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 55-63.
  6. Eduard HOCHREITER & Georg WINCKLER, 1993. "The Advantages of Tying Austria's Hands: The Success of the Hard Currency Strategy," Vienna Economics Papers vie9307, University of Vienna, Department of Economics.
  7. Corsetti, G. & Pesenti, P. & Roubini, N., 1998. "What Caused the Asian Currency and Financial Crisis?," Papers 343, Banca Italia - Servizio di Studi.
  8. Flood, Robert P & Rose, Andrew K, 1999. "Understanding Exchange Rate Volatility without the Contrivance of Macroeconomics," Economic Journal, Royal Economic Society, vol. 109(459), pages F660-72, November.
  9. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December.
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