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

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Abstract

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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  • Michael Dueker & Andreas Fischer, 2001. "The Mechanics of a successful Exchange-Rate Peg: Lessons from Emerging Markets," Working Papers 01.02, Swiss National Bank, Study Center Gerzensee.
    • Handle: RePEc:szg:worpap:0102
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    References listed on IDEAS

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    9. Fischer, Andreas & Dueker, Michael, 2000. "Austria's Hard-Currency Policy: The Mechanics of Successful Exchange-Rate Peg," CEPR Discussion Papers 2478, C.E.P.R. Discussion Papers.
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    Cited by:

    1. Syed Kumail Abbas Rizvi & Bushra Naqvi & Nawazish Mirza, 2013. "Choice of Anchor Currencies and Dynamic Preferences for Exchange Rate Pegging in Asia," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(2), pages 37-49, July-Dec.
    2. Michael J. Dueker & Andreas M. Fischer, 2006. "Do inflation targeters outperform non-targeters?," Review, Federal Reserve Bank of St. Louis, vol. 88(Sep), pages 431-450.
    3. Mr. Andrea Bubula & Ms. Inci Ötker, 2003. "Are Pegged and Intermediate Regimes More Crisis Prone?," IMF Working Papers 2003/223, International Monetary Fund.

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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

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