This paper analyzes the arguments that fixed exchange rates and financial markets can provide strong discipline over domestic macroeconomic policies. We conclude that such discipline works only under a rather limited set of circumstances. A key aspect of our analysis is the distinction between...

There has been much interest in whether fixed exchange rates can provide a strong source of discipline over domestic monetary and fiscal policies. We argue that previous studies, however, have not paid sufficient attention to the distinction between constraint and incentive effects and that...

The recent rash of international currency crises has generated considerable interest in the role that exchange rate regimes have played in contributing to these crises. Many economists have argued that efforts to operate adjustably pegged exchange rate regimes have been a major contributor to...

The recent rash of international currency crises has generated considerable interest in the role that exchange rate regimes have played in contributing to these crises. Many economists have argued that efforts to operate adjustably pegged exchange rate regimes have been a major contributor to...

Purpose The purpose of this paper is to test whether financial crises themselves provide some degree of ex post discipline. In other words, is there learning from the mistakes associated with crises? The authors test this hypothesis on credit growth, a frequent contributor to banking crises....

When faced with speculative pressure on their currencies, policymakers often delay devaluations by spending billions of dollars in defense of a given exchange rate peg, only to succumb and devalue their currency later on. Using a political economy approach we argue that the interaction of...