Exchange Rate Policy Under Sovereign Default Risk

Tinbergen Institute Discussion Paper 11-027/2

10 Pages Posted: 13 Feb 2011

See all articles by Andreas Schabert

Andreas Schabert

University of Cologne - Department of Economics; University of Dortmund; University of Amsterdam - Faculty of Economics and Business

Date Written: January 31, 2011

Abstract

We examine monetary policy options for a small open economy where sovereign default might occur due to intertemporal insolvency. Under interest rate policy and floating exchange rates the equilibrium is indetermined. Under a fixed exchange rate the equilibrium is uniquely determined and independent of sovereign default.

Keywords: Exchange rate peg, interest rate policy, equilibrium determination, sovereign default, public debt

JEL Classification: E52, E63, F31, F41

Suggested Citation

Schabert, Andreas, Exchange Rate Policy Under Sovereign Default Risk (January 31, 2011). Tinbergen Institute Discussion Paper 11-027/2. Available at SSRN: https://ssrn.com/abstract=1759883 or http://dx.doi.org/10.2139/ssrn.1759883

Andreas Schabert (Contact Author)

University of Cologne - Department of Economics ( email )

Cologne, 50923
Germany

University of Dortmund ( email )

Vogelpothsweg 87
Dortmund, 44227
Germany
+49 231 755 3288 (Phone)

University of Amsterdam - Faculty of Economics and Business ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

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