What Happens When Countries Peg Their Exchange Rates? (The Real Side of Monetary Reforms)

39 Pages Posted: 1 May 1998 Last revised: 22 Jun 2000

See all articles by Sergio T. Rebelo

Sergio T. Rebelo

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: September 1997

Abstract

There is a well-known set of empirical regularities that describe the experience of countries that peg their exchange rate as part of a macroeconomic adjustment program. Following the peg economies tend to experience an increase in GDP, a large expansion of production in the non-tradable sector, a contraction in tradables production, a current account deterioration, an increase in the real wage, a reduction in unemployment, a sharp appreciation in the relative price of non-tradables and a boom in the real estate market. This paper discusses how the changes in the expected behavior of fiscal policy that tend to be associated with the peg can contribute to explaining these facts.

Suggested Citation

Tavares Rebelo, Sergio, What Happens When Countries Peg Their Exchange Rates? (The Real Side of Monetary Reforms) (September 1997). NBER Working Paper No. w6168. Available at SSRN: https://ssrn.com/abstract=82114

Sergio Tavares Rebelo (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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