Download This PaperTo Peg or Not to Peg? A Simple Model of Exchange Rate Regime Choice in Small Economies
9 Pages Posted: 3 Jun 2001
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: Suggested Citation
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