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Default, Electoral Uncertainty and the Choice of Exchange Regime

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  • Hefeker, Carsten

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.

Suggested Citation

  • Hefeker, Carsten, 2004. "Default, Electoral Uncertainty and the Choice of Exchange Regime," HWWA Discussion Papers 298, Hamburg Institute of International Economics (HWWA).
    • Handle: RePEc:zbw:hwwadp:298
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    More about this item

    Keywords

    debt crisis; currency crisis; exchange rate regime;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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