The Mirage of Fixed Exchange Rates

46 Pages Posted: 14 Jun 2000 Last revised: 22 Sep 2010

See all articles by Maurice Obstfeld

Maurice Obstfeld

University of California, Berkeley - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 1995

Abstract

This paper discusses the profound difficulties of maintaining fixed exchange rates in a world of expanding global capital markets. Contrary to popular wisdom, industrialized-country monetary authorities easily have the resources to defend exchange parities against virtually any private speculative attack. But if their commitment to use those resources lacks credibility with markets, the costs to the broader economy of defending an exchange-rate peg can be very high. The dynamic interplay between credibility and commitment is illustrated by the 1992 Swedish and British crises and the 1994-95 Mexican collapse. We also discuss the small number of successful fixers.

Suggested Citation

Obstfeld, Maurice and Rogoff, Kenneth S., The Mirage of Fixed Exchange Rates (July 1995). NBER Working Paper No. w5191. Available at SSRN: https://ssrn.com/abstract=225254

Maurice Obstfeld (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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HOME PAGE: http://emlab.berkeley.edu/users/obstfeld/

Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Kenneth S. Rogoff

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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