To Peg or Not to Peg? A Simple Model of Exchange Rate Regime Choice in Small Economies

9 Pages Posted: 3 Jun 2001

See all articles by Helge Berger

Helge Berger

Free University Berlin - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Henrik Jensen

University of Copenhagen - Department of Economics; Centre for Economic Policy Research (CEPR)

Guttorm Schjelderup

NHH Norwegian School of Economics - Department of Business and Management Science

Date Written: April 2001

Abstract

The choice of an exchange rate peg often points to a trade-off between gaining credibility and losing flexibility. We show that the flexibility loss may be reduced if domestic and foreign shocks are coorelated and more volatile. Allowing for a plausible structural change after a peg, a flexibility gain may result.

Keywords: Exchange Rate Regime Choice, Credibility Versus Flexibility, International Spill-Overs, Imported Stabilization

JEL Classification: E52, F41

Suggested Citation

Berger, Helge and Jensen, Henrik and Schjelderup, Guttorm, To Peg or Not to Peg? A Simple Model of Exchange Rate Regime Choice in Small Economies (April 2001). Available at SSRN: https://ssrn.com/abstract=270950 or http://dx.doi.org/10.2139/ssrn.270950

Helge Berger (Contact Author)

Free University Berlin - Department of Economics ( email )

Boltzmannstr. 20
Berlin 14195, 14195
Germany
+49 30 838-54037 (Phone)
+49 30 838-52782 (Fax)

HOME PAGE: http://www.wiwiss.fu-berlin.de/berger/eng_index.htm

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

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Munich, DE-81679
Germany
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+49 89 9224 1409 (Fax)

HOME PAGE: http://www.CESifo.de

Henrik Jensen

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark
+45 35 323 043 (Phone)
+45 35 323 000 (Fax)

HOME PAGE: http://hjeconomics.dk

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Guttorm Schjelderup

NHH Norwegian School of Economics - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

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