outside these rate-of-return bands can be used as a simple test of exchange rate credibility, under the assumption of …

outside these rate-of-return bands can be used as a simple test of exchange rate credibility, under the assumption of …

Central banks that lack credibility often tie their exchange rate to that of a more credible partner in order to … “import” credibility. We show in a small open economy model that a central bank that displays “limited credibility” can … credibility will peg their currency to that of a more credible partner. As the central bank's credibility improves it will place …