Transparency, reputation, and credibility under floating and pegged exchange rates

20Citations
Citations of this article
13Readers
Mendeley users who have this article in their library.
Get full text

Abstract

This paper shows that if the cost of importing foreign inflation and real exchange rate shocks are not too high, then the equilibrium nominal exchange rate regime for a country with a credibility problem is a peg, under which credibility is higher and inflation is lower than under a float. This holds true although devaluations of the pegged rate are assumed to be costless. The reason is that as realized inflation is not perfectly controllable, planned inflation under a float is private information. In contrast, since the exchange rate can be perfectly controlled, pegging resolves the private information problem, is more transparent, and makes reputation more effective.

Cite

CITATION STYLE

APA

Herrendorf, B. (1999). Transparency, reputation, and credibility under floating and pegged exchange rates. Journal of International Economics, 49(1), 31–50. https://doi.org/10.1016/S0022-1996(98)00060-9

Register to see more suggestions

Mendeley helps you to discover research relevant for your work.

Already have an account?

Save time finding and organizing research with Mendeley

Sign up for free