We argue that the traditional question 'fixed vs. flexible exchange rates?' is not well-defined, because 'flexible exchange rates' does not explicitly specify any particular monetary policy. In traditional analyses, 'flexible exchange rates' was interpreted as implying a fixed money supply. But...

A defining stylized fact associated with exchange-rate-based stabilization programs is that their initial phase is characterized by several years of continuous expansion in private consumption and a gradual appreciation of the real exchange rate. This paper shows that a large class of standard...

Central banks with an exchange rate objective set the interest rate in response to what they call "pressure." Instead, existing interest rate rules rely on the exchange rate minus its target. To stay closer to actual policy, we introduce a rule that uses exchange market pressure (EMP), the...

Exchange rate policy results not just from economic, but also from fundamentally political processes. This paper analyzes the propensity of policy makers to relax fixed exchange rate regimes by performing regular realignments. The argument is that when information is scarce as in transition...

This paper provides an analysis of Keynes’s original Bancorʺ proposal as well as more recent proposals for fixed exchange rates. We argue that these schemes fail to pay due attention to the importance of capital movements in today’s economy, and that they implicitly adopt an unsatisfactory...

The procedure of fixing a currently floating exchange rate at a given (and publicly announced) future date has a broad range of applications. Based on a (continuous-time) monetary exchange rate model with flexible prices, this paper analyzes exchange rate dynamics during the transition from...

While virtually all modern currency crisis models recognise that the decision to abandon an exchange rate peg depends on how tenaciously policy makers are willing to defend it, they seldom model how this is done. We incorporate both the mechanics of speculation and of a defence policy against...

In the context of perfect foresight, intertemporal optimizing, and a cash-in-advance model, this paper studies the dynamics of an inconsistent exchange rate-based stabilization policy that fixes the exchange rate without an underlying fiscal adjustment to ensure that the exchange rate policy is...