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Default, Electoral Uncertainty and the Choice of Exchange Regime

  • 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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Paper provided by Hamburg Institute of International Economics (HWWA) in its series HWWA Discussion Papers with number 298.

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Date of creation: 2004
Date of revision:
Handle: RePEc:zbw:hwwadp:298
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  1. Andrea Bubula & Inci Ötker, 2003. "Are Pegged and Intermediate Regimes More Crisis Prone?," IMF Working Papers 03/223, International Monetary Fund.
  2. 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, June.
  3. Harold L. Cole & Timothy J. Kehoe, 1998. "Self-fulfilling debt crises," Staff Report 211, Federal Reserve Bank of Minneapolis.
  4. Andrew K. Rose & Mark M. Spiegel, 2004. "A Gravity Model of Sovereign Lending: Trade, Default, and Credit," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 50-63, June.
  5. Andrew K. Rose, 2002. "One Reason Countries Pay their Debts: Renegotiation and International Trade," EUI-RSCAS Working Papers 18, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  6. 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.
  7. repec:att:wimass:8813 is not listed on IDEAS
  8. Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
  9. Bulow, J. & Rogoff, K., 1988. "Sovereign Debt: Is To Forgive To Forget?," Papers 411, Stockholm - International Economic Studies.
  10. Allan Drazen & Paul R. Masson, 1993. "Credibility of Policies versus Credibility of Policymakers," NBER Working Papers 4448, National Bureau of Economic Research, Inc.
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  12. 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.
  13. Edwards, Sebastian, 2002. "The great exchange rate debate after Argentina," The North American Journal of Economics and Finance, Elsevier, vol. 13(3), pages 237-252, December.
  14. Jay C. Shambaugh, 2004. "The Effect of Fixed Exchange Rates on Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 300-351, February.
  15. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  16. de Kock, Gabriel & Grilli, Vittorio, 1993. "Fiscal Policies and the Choice of Exchange Rate Regime," Economic Journal, Royal Economic Society, vol. 103(417), pages 347-58, March.
  17. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  18. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  19. Andres Velasco & Alejandro Neut, 2003. "Tough Policies, Incredible Policies?," NBER Working Papers 9932, National Bureau of Economic Research, Inc.
  20. Roberto Chang & Andres Velasco, 1998. "Financial Crises in Emerging Markets," NBER Working Papers 6606, National Bureau of Economic Research, Inc.
  21. Peter Montiel & Samir Jahjah, 2003. "Exchange Rate Policy and Debt Crises in Emerging Economies," IMF Working Papers 03/60, International Monetary Fund.
  22. Maurice Obstfeld, 1995. "Models of Currency Crises with Self-Fulfilling Features," NBER Working Papers 5285, National Bureau of Economic Research, Inc.
  23. Inci Ötker & Rupa Duttagupta, 2003. "Exits From Pegged Regimes: An Empirical Analysis," IMF Working Papers 03/147, International Monetary Fund.
  24. Miller, V., 2003. "Bank runs and currency peg credibility," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 385-392, June.
  25. Masson, Paul R, 1995. "Gaining and Losing ERM Credibility: The Case of the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(430), pages 571-82, May.
  26. 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.
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