The Mirage of Fixed Exchange Rates

Maurice Obstfeld and Kenneth Rogoff

No 5191, NBER Working Papers from National Bureau of Economic Research, Inc

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. We also discuss the small number of successful fixers.

JEL-codes: E42 F31 (search for similar items in EconPapers)
Date: 1995-07
Note: IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (533)

Published as Journal of Economic Perspectives, Fall 1995, Volume 9, #4, pp. 73-96

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