Exchange-rate-based stabilizations, even if successful, usually lack credibility initially. This is reflected in high (ex post) real interest rates and some degree of real exchange rate appreciation. Empirical observation suggests that wage inflation declines smoothly over time whilst interest rates are volatile. Our model captures these features and provides insights into: the eruption of exchange rate crises after a long period of apparently successful stabilization; the potential advantages of a heterodox approach; when to delay a stabilization attempt; and the optimal date for "exit" to a floating exchange rate. © 2007 Elsevier Inc. All rights reserved.
|Title of host publication||Journal of Macroeconomics|
|Number of pages||15|
|Publication status||Published - Dec 2007|
|Name||Journal of Macroeconomics|
- Currency crisis
- Exchange rate
Bleaney, M., & Gundermann, M. (2007). Stabilizations, crises and the "exit" problem - A theoretical model. In Journal of Macroeconomics (pp. 876-890). (Journal of Macroeconomics; Vol. 29). https://doi.org/10.1016/j.jmacro.2005.10.021