Exchange Rate Pegs, Fiscal Policy and Credibility

Torben Andersen () and Julia Chiriaeva

Open Economies Review, 2007, vol. 18, issue 1, 53-76

Abstract: In a fixed exchange rate regime, an exchange rate change can be a swift way to change the real exchange rate in the short run. Fiscal policy also affects relative prices, and fiscal policy response to various types of shocks can therefore be crucial for the credibility of an exchange rate peg. We develop a model within which fiscal policy plays a crucial role for ensuring the viability and thus credibility of an exchange rate peg. We use the insights of this model to take a closer look at Denmark, which has successfully pursued a fixed exchange rate policy since 1982. Copyright Springer Science+Business Media, LLC 2007

Keywords: Credibility; Exchange rate regimes; Fiscal policy; Target zones; The EMS crisis; F31; F33; F41 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11079-007-9004-1

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