Destabilizing Effects of Exchange-Rate Escape Clauses

Maurice Obstfeld

No 233439, Center for International and Development Economics Research (CIDER) Working Papers from University of California-Berkeley, Department of Economics

Abstract: This paper studies policy rules with escape clauses, analyzing as an example fixed exchange rate systems that allow member countries the freedom to realign in periods of stress. While well-designed escape-clause rules can raise society's welfare in principle, limited credibility makes it difficult to implement such rules in practice. An EMS-type institution that imposes political costs on policymakers who realign may raise welfare, but can also produce equilibria far inferior to an irrevocably fixed exchange rate. Switches between multiple equilibria may have the character of sudden speculative attacks.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 36
Date: 1996-12
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Citations: View citations in EconPapers (5)

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https://ageconsearch.umn.edu/record/233439/files/cal-cider-c096-075.pdf (application/pdf)

Related works:
Journal Article: Destabilizing effects of exchange-rate escape clauses (1997)
Working Paper: Destabilizing Effects of Exchange-Rate Escape Clauses (1996)
Working Paper: Destabilizing Effects of Exchange-Rate Escape Clauses (1991)
Working Paper: Destabilizing Effects of Exchange-Rate Escape Clauses (1991)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ucbewp:233439

DOI: 10.22004/ag.econ.233439

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