This paper examines credibility and reputational factors in explaining the December 1994 crisis of the Mexican peso. After reviewing events leading to the crisis, a model emphasizing the inflation-competitiveness trade-off is presented to explain the formation of devaluation expectations....

Standard models of policy credibility, defined as the expectation that an announced policy will be carried out, emphasize the preferences of the policymaker, and the role of tough policies in signalling toughness and raising credibility. Whether a policy is carried out, however, will also...

The paper presents estimates of a model of the credibility of the U.K. commitment to its central parity against the deutsche mark during the period of U.K. ERM membership (1990-92). The measure of credibility used is the long-term interest differential with Germany. Credibility is decomposed...

Evaluation of policy rules using empirical macroeconomic models is usually done on the assumption that the rules are perfectly credible. However, there are usually circumstances that cause the authorities to abandon any given rule. The public's expectations reflect this possibility. In the...