Credibility, Cost of Reneging and the Choice of Fixed Exchange Rate Regime

U of Aarhus Dept. of Econ. Working Paper No. 2002-3

13 Pages Posted: 22 Feb 2002

See all articles by Bo Sandemann Rasmussen

Bo Sandemann Rasmussen

Aarhus University - Department of Economics and Business Economics

Date Written: February 2002

Abstract

The choice of exchange rate regime is considered for a small open economy. Assuming that different forms of fixed exchange rate regimes involve different costs of reneging, it is shown that one potential beneficial aspect of joining a monetary union with a common currency is that it is less likely to be exposed to "speculative attacks" than less formalized fixed exchange rate arrangements.

Keywords: Monetary union, fixed exchange rate, credibility, cost of reneging, multiple equilibria

JEL Classification: F33, F41

Suggested Citation

Rasmussen, Bo Sandemann, Credibility, Cost of Reneging and the Choice of Fixed Exchange Rate Regime (February 2002). U of Aarhus Dept. of Econ. Working Paper No. 2002-3, Available at SSRN: https://ssrn.com/abstract=301587 or http://dx.doi.org/10.2139/ssrn.301587

Bo Sandemann Rasmussen (Contact Author)

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V
Denmark
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

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