Description of this paper

Why is the home interest rate always higher under a noncredible peg than under a credible peg?

Description

solution


Question

A peg is not credible when investors fear depreciation in the future, despite official;announcements. Why is the home interest rate always higher under a noncredible peg;than under a credible peg? Why does that make it more costly to maintain a noncredible;peg than a credible peg? Explain why nothing more than a shift in investor;beliefs can cause a peg to break.

 

Paper#30775 | Written in 18-Jul-2015

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