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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/10419/19270/1/298.pdf
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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
Handle: RePEc:zbw:hwwadp:298
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Web page: http://www.econstor.eu/handle/10419/20
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  1. Maurice Obstfeld, 1995. "Models of Currency Crises with Self-Fulfilling Features," NBER Working Papers 5285, National Bureau of Economic Research, Inc.
  2. Sebastian Edwards, 2002. "The Great Exchange Rate Debate after Argentina," Working Papers 74, Oesterreichische Nationalbank (Austrian Central Bank).
  3. 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.
  4. Andrew K. Rose & Mark M. Spiegel, 2002. "A Gravity Model of Sovereign Lending: Trade, Default and Credit," NBER Working Papers 9285, National Bureau of Economic Research, Inc.
  5. Bulow, J. & Rogoff, K., 1988. "Sovereign Debt: Is To Forgive To Forget?," Working papers 8813, Wisconsin Madison - Social Systems.
  6. Andrew K. Rose, 2002. "One Reason Countries Pay their Debts: Renegotiation and International Trade," NBER Working Papers 8853, National Bureau of Economic Research, Inc.
  7. Paul R Masson & Allan Drazen, 1994. "Credibility of Policies Versus Credibility of Policymakers," IMF Working Papers 94/49, International Monetary Fund.
  8. Roberto Chang & Andres Velasco, 1998. "Financial Crises in Emerging Markets," NBER Working Papers 6606, National Bureau of Economic Research, Inc.
  9. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-178, February.
  10. Inci Ötker & Rupa Duttagupta, 2003. "Exits From Pegged Regimes; An Empirical Analysis," IMF Working Papers 03/147, International Monetary Fund.
  11. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  12. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  13. Harold L. Cole & Timothy J. Kehoe, 1998. "Self-fulfilling debt crises," Staff Report 211, Federal Reserve Bank of Minneapolis.
  14. Andrea Bubula & Inci Ötker, 2003. "Are Pegged and Intermediate Regimes More Crisis Prone?," IMF Working Papers 03/223, International Monetary Fund.
  15. 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.
  16. Peter J Montiel & Samir Jahjah, 2003. "Exchange Rate Policy and Debt Crises in Emerging Economies," IMF Working Papers 03/60, International Monetary Fund.
  17. Klein, Michael W. & Shambaugh, Jay C., 2006. "Fixed exchange rates and trade," Journal of International Economics, Elsevier, vol. 70(2), pages 359-383, December.
  18. Miller, V., 2003. "Bank runs and currency peg credibility," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 385-392, June.
  19. 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.
  20. 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.
  21. 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.
  22. Andres Velasco & Alejandro Neut, 2003. "Tough Policies, Incredible Policies?," NBER Working Papers 9932, National Bureau of Economic Research, Inc.
  23. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
  24. 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.
  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 571-582, May.
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