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Competitive exchange rates, inflation and monetary policy

Author

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  • García Fronti, Javier

    (Universidad de Buenos Aires)

Abstract

This paper analyses the relation between political uncertainty and the Peso Problem in emerging markets. Initially, it is assumed that the country has a hard peg system (the present government will never devalue). As for the political opposition, however, it is open to the possibility of leaving the fixed regime when it comes to power. Assuming that the change of government follows a Poisson distribution, our model shows that the expectations of a devaluation under the subsequent new government may drive up country risk premium under the first government. Sovereign spreads in Argentina in 2001 are used to illustrate the argument

Suggested Citation

  • García Fronti, Javier, 2008. "Competitive exchange rates, inflation and monetary policy," Revista de Economía Política de Buenos Aires, Universidad de Buenos Aires. Facultad de Ciencias Económicas., issue 3-4, pages 33-45, December.
    • Handle: RePEc:ake:repba1:y:2008:i:3-4:p:33-45
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