Sustaining Fixed Exchange Rates: A Model with Debt and Institutions

23 Pages Posted: 30 Jan 2006

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Alexander Pitt

International Monetary Fund (IMF) - African Department

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Date Written: March 2001

Abstract

Fixed exchange rate regimes have come into disrepute, as their defense has become all but impossible. Yet, while a determined attack on a currency cannot be prevented or, ultimately, withstood, policies can reduce the vulnerability of a country to such attacks.

The paper develops an analytical framework of costs and benefits of a fixed exchange rate, based on the ability of a developing country to meet its external obligations while achieving a maximum rate of long-term output growth. The focus is on how structural policies and institutions influence the degree of dependence of a country on a fixed exchange rate regime.

Keywords: Exchange rates, currency attacks, competition policy, financial supervision, productivity

JEL Classification: E42, N20, N23, O16

Suggested Citation

Pitt, Alexander, Sustaining Fixed Exchange Rates: A Model with Debt and Institutions (March 2001). IMF Working Paper No. 01/27, Available at SSRN: https://ssrn.com/abstract=879380

Alexander Pitt (Contact Author)

International Monetary Fund (IMF) - African Department ( email )

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