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Default, Electoral Uncertainty and the Choice of Exchange Regime

Listed author(s):
  • Hefeker, Carsten

The paper explores the interaction between debt crises and devaluation. Since the optimal level of devaluation in a crisis depends on the level of debt that has to be serviced, a default makes a devaluation less likely. Expected devaluation depends thus on expectations about default which is also a function of the type of policymaker. Therefore, the decision to devalue can be forced upon the government by adverse expectations about default and the type of policymaker in office. I also explore how these uncertainties affect the policymaker?s choice of exchange rate regime.

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File URL: https://www.econstor.eu/bitstream/10419/19869/1/Hefeker.pdf
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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Göttingen 2007 with number 13.

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Date of creation: 2007
Handle: RePEc:zbw:gdec07:6536
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  1. Paul R Masson & Allan Drazen, 1994. "Credibility of Policies Versus Credibility of Policymakers," IMF Working Papers 94/49, .
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  4. Andrew K. Rose, 2002. "One Reason Countries Pay their Debts: Renegotiation and International Trade," NBER Working Papers 8853, National Bureau of Economic Research, Inc.
  5. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-661, September.
  6. Klein, Michael W. & Shambaugh, Jay C., 2006. "Fixed exchange rates and trade," Journal of International Economics, Elsevier, vol. 70(2), pages 359-383, December.
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  8. Andres Velasco & Alejandro Neut, 2003. "Tough Policies, Incredible Policies?," NBER Working Papers 9932, National Bureau of Economic Research, Inc.
  9. Jeremy I. Bulow & Kenneth Rogoff, 1988. "Sovereign Debt: Is To Forgive To Forget?," NBER Working Papers 2623, National Bureau of Economic Research, Inc.
  10. Inci Ötker & Rupa Duttagupta, 2003. "Exits From Pegged Regimes; An Empirical Analysis," IMF Working Papers 03/147, .
  11. Masson, Paul R, 1995. "Gaining and Losing ERM Credibility: The Case of the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(430), pages 571-582, May.
  12. Andrew K. Rose & Mark M. Spiegel, 2002. "A gravity model of sovereign lending: trade, default and credit," Working Paper Series 2002-09, Federal Reserve Bank of San Francisco.
  13. de Kock, Gabriel & Grilli, Vittorio, 1993. "Fiscal Policies and the Choice of Exchange Rate Regime," Economic Journal, Royal Economic Society, vol. 103(417), pages 347-358, March.
  14. Chang, R. & Velasco, A., 1998. "Financial Crises in Emerging Markets: A Canonical Model," Working Papers 98-21, C.V. Starr Center for Applied Economics, New York University.
  15. Miller, V., 2003. "Bank runs and currency peg credibility," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 385-392, June.
  16. Andrea Bubula & Inci Ötker, 2003. "Are Pegged and Intermediate Regimes More Crisis Prone?," IMF Working Papers 03/223, .
  17. Maurice Obstfeld, 1995. "Models of Currency Crises with Self-Fulfilling Features," NBER Working Papers 5285, National Bureau of Economic Research, Inc.
  18. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  19. Atish R. Ghosh & Anne-Marie Gulde & Holger C. Wolf, 2003. "Exchange Rate Regimes: Choices and Consequences," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072408, September.
  20. Agenor, Pierre-Richard & Masson, Paul R, 1999. "Credibility, Reputation, and the Mexican Peso Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 70-84, February.
  21. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  22. Peter J Montiel & Samir Jahjah, 2003. "Exchange Rate Policy and Debt Crises in Emerging Economies," IMF Working Papers 03/60, .
  23. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
  24. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  25. Roberto Chang & Andres Velasco, 1998. "Financial Crises in Emerging Markets," NBER Working Papers 6606, National Bureau of Economic Research, Inc.
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