This paper studies the political economy of realignments to fixed exchange rates and suggests that the use of realignments is less likely when there are political benefits from stable exchange rates and when linkages across other issue areas increase the costs of realignment. More specifically...

In this paper we claim that the empirical literature on target zones which is usuallay interpreted as having overwhelmingly tested and falsified Krugman's model is really a test of ERM asymmetry. Its massive empirical rejection thus means that the ERM never operated as a fully symmetrical system

The Central Banks around the world are commonly responsible for their exchange rate policies. During the 1990s it has been clear that the controllability of the exchange rates by the central banks' interventions is limited (McKinnon, 1993). When the underlying monetary reserves are bounded,...