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| Author: | Cukierman, A. Spiegel, Y. Leiderman, L. |
| Title: | The choice of exchange rate bands: balancing credibility and flexibility |
| Journal: | Journal of International Economics
2004 : MAR, VOL. 62:2, p. 379-408 |
| Index terms: | Commitment Exchange rates Flexibility Reputation |
| Language: | eng |
| Abstract: | This article develops a framework for the optimal choice of exchange rate bands within an environment in which policymakers dislike nominal exchange rate variability, but value the flexibility to adjust the nominal exchange rate in response to shocks, in order to attain real exchange rate objectives. An endogenous characterization of the optimal exchange rate band is provided in terms of the underlying distribution of shocks to the current and capital accounts of the balance of payments and in terms of the commitment reputation of policymakers. |
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