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To peg or not to peg?: A simple model of exchange rate regime choice in small economies

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  • Berger, Helge
  • Jensen, Henrik
  • Schjelderup, Guttorm

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.
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  • Berger, Helge & Jensen, Henrik & Schjelderup, Guttorm, 2001. "To peg or not to peg?: A simple model of exchange rate regime choice in small economies," Economics Letters, Elsevier, vol. 73(2), pages 161-167, November.
    • Handle: RePEc:eee:ecolet:v:73:y:2001:i:2:p:161-167
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