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To Peg or Not To Peg? A Simple Model of Exchange Rate Regime Choice In Small Economies

Helge Berger (), Henrik Jensen () and Guttorm Schjelderup ()

No 468, CESifo Working Paper Series from CESifo

Abstract: The choice of an exchange rate peg often points to a trade-off between gaining credibility and losing flexibility. We show that the flexibility loss may be reduced if domestic and foreign shocks are coorelated and more volatile. Allowing for a plausible structural change after a peg, a flexibility gain may result.

Keywords: Exchange rate regime choice; credibility versus flexibility; international spill-overs; imported stabilization (search for similar items in EconPapers)
Date: 2001
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