The Mechanics of a Successful Exchange-Rate Peg: Lessons for Emerging Markets

38 Pages Posted: 12 Jun 2001

See all articles by Michael Dueker

Michael Dueker

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Andreas M. Fischer

Swiss National Bank; Centre for Economic Policy Research (CEPR)

Date Written: June 2001

Abstract

This study seeks to determine if there were identifiable contrasts between the Austrian and Thai pegs that would have hinted at problems for Thailand prior to July 1997. The strategy is to first estimate a reaction function of a successful pegging country, i.e. Austria, to help identify salient features that made the Austrian peg credible. Next, the same model is applied to Thailand's monetary policy, an East Asian country that maintained one of the tightest pegs to the US dollar prior to its collapse. One lesson for pegging countries that emerges from the empirical results is that they ought to behave like assiduous inflation targeters even when there is no pressure on the exchange rate. A second lesson is that care is needed in choosing an anchor currency, because the major currencies experience wide swings against one another.

Keywords: Currency crisis, exchange rate peg, Thailand

JEL Classification: E52, E58, F31

Suggested Citation

Dueker, Michael and Fischer, Andreas M., The Mechanics of a Successful Exchange-Rate Peg: Lessons for Emerging Markets (June 2001). Available at SSRN: https://ssrn.com/abstract=273193

Michael Dueker (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Andreas M. Fischer

Swiss National Bank ( email )

Borsenstrasse 15
CH-8022 Zurich
Switzerland
+41 1 631 3294 (Phone)
+41 1 631 3901 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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