Stress testing has become a tool of choice in banking for risk managers and regulators alike, and it is used more widely as a way to assess resilience to severely adverse events. Yet even the most creative risk manager would have been challenged to design a scenario that would have adequately...

In this paper, we model the transition to a nominal peg by setting up a two-country international dynamic game in which the domestic country announces at time 0 that at time T it will peg the exchange rate at a specific value. The domestic and foreign economies are symmetric. Each country...