Default, Electoral Uncertainty and the Choice of Exchange Regime

Carsten Hefeker

No 298, HWWA Discussion Papers from Hamburg Institute of International Economics (HWWA)

Abstract: The paper explores the interaction between debt crises and devaluation. Since the optimal level of devaluation in a crisis depends on the level of debt that has to be serviced, a default makes a devaluation less likely. Expected devaluation depends thus on expectations about default which is also a function of the type of policymaker. Therefore, the decision to devalue can be forced upon the government by adverse expectations about default and the type of policymaker in office. I also explore how these uncertainties affect the policymaker's choice of exchange rate regime.

Keywords: debt crisis; currency crisis; exchange rate regime (search for similar items in EconPapers)
JEL-codes: F33 F34 (search for similar items in EconPapers)
Date: 2004
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https://www.econstor.eu/bitstream/10419/19270/1/298.pdf (application/pdf)

Related works:
Working Paper: Default, Electoral Uncertainty and the Choice of Exchange Regime (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:hwwadp:298

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