In this paper, three possible reasons are examined for a sluggish inflation response to a hard-currency peg. Models of overlapping wage contracts are analyzed and shown to generate little inertia. These findings are contrasted with the effects of government credibility and the speed of private...

This paper evaluates the importance of auction format on bidding behavior and seller revenue, focusing on differences in performance under uniform-price and discriminatory-price formats. The analysis is based on a standard benchmark model from which empirically testable hypotheses are derived on...

The issue of whether the money supply can serve as a nominal anchor for the domestic price level under real exchange rate targeting is examined. When capital controls are perfect, so that there is complete separation between official and unofficial foreign exchange markets, the domestic...

The paper models an adjustable peg exchange rate arrangement as a policy rule with an escape clause under which the timing and magnitudes of realignments are the outcomes of policy optimization decisions. Under the assumptions that market participants are rational, risk averse, and fully...

International policy coordination is generally considered to be made less likely--and less profitable--by uncertainty about how the economy works. This paper offers a counter example, in which investors' increased uncertainty about portfolio preference makes coordination more beneficial. Without...

Under the assumption of no arbitrage, the credibility of an exchange rate target zone is tested by whether domestic interest rates fall within "rate-of-return bands" between the maximum and minimum home currency rate of return on a foreign investment in the absence of a devaluation. Under the...

This paper describes the operation of the Estonian currency board arrangement that has pegged the Estonian kroon to the deutsche mark since June 20, 1992, when Estonia left the ruble zone and introduced its own currency. The paper describes the institutional arrangements that were chosen for...

Devaluation is an integral part of adjustment in many developing countries, particularly relied upon by countries facing large external imbalances. A devaluation can only reduce trade imbalances if it translates to a real devaluation and if trade flows respond to relative prices in a significant...

This paper examines the credibility of the exchange rate policy pursued by the Belgian monetary authorities of pegging the Belgian franc to a narrow fluctuation band around the deutsche mark, in the context of the exchange rate mechanism of the European Monetary System. Simple interest rate...

Two dual exchange rate regimes are compared. Under one, the official market clears through changes in international reserves. Under the other, the central bank implements a rationing scheme so as to keep international reserves constant. The paper discusses the effects on inflation, the balance...