Flood, Robert P.; Marion, Nancy Peregrim - 2021
A developing country often pegs its exchange rate to a single currency, such as the U.S. dollar, even though it faces a … higher inflation rate than the country to which it is pegged. As a consequence, it experiences real exchange-rate … should it devalue, and by how much? In this paper, we consider a policymaker who pegs the nominal exchange rate and adjusts …