The Mirage of Fixed Exchange Rates

Maurice Obstfeld and Kenneth Rogoff

Journal of Economic Perspectives, 1995, vol. 9, issue 4, 73-96

Abstract: This paper discusses the profound difficulties of maintaining fixed exchange rates in a world of expanding global capital markets. Contrary to popular wisdom, industrialized-country monetary authorities easily have the resources to defend exchange parities against virtually any private speculative attack. But if their commitment to use those resources lacks credibility with markets, the costs to the broader economy of defending an exchange-rate peg can be very high. The dynamic interplay between credibility and commitment is illustrated by the 1992 Swedish and British crises and the 1994-95 Mexican collapse. The authors also discuss the small number of successful fixers.

JEL-codes: E42 F33 (search for similar items in EconPapers)
Date: 1995
Note: DOI: 10.1257/jep.9.4.73
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Citations: View citations in EconPapers (538)

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Working Paper: The mirage of fixed exchange rates (1995)
Working Paper: The Mirage of Fixed Exchange Rates (1995)
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