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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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  • Helge Berger
  • Henrik Jensen
  • Guttorm Schjelderup

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.

Suggested Citation

  • Helge Berger & Henrik Jensen & Guttorm Schjelderup, 2001. "To Peg or Not To Peg? A Simple Model of Exchange Rate Regime Choice In Small Economies," CESifo Working Paper Series 468, CESifo.
    • Handle: RePEc:ces:ceswps:_468
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    References listed on IDEAS

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