A note on the credibility of Bank-Run-Preventing Devaluation policies

Enrique Lucio Kawamura

ECONÓMICA, 2002, vol. XLVIII, issue 1-2, pages 51-67

Abstract: In this note I provide a notion of a credible devaluation policy in the context of the Chang and Velasco (2000) model. I show that when the long term asset is illiquid enough a flexible exchange rate policy is credible. It is also shown that there exists a non-trivial range for the liquidation value of the long term investment technology for which the same policy is not credible. Finally I propose a different flexible exchange rate regime which is shown to be credible.

JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2002

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Persistent link: http://EconPapers.repec.org/RePEc:lap:journl:527

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