Interest Rate Defenses of Currency Pegs

Interest Rate Defenses of Currency Pegs
This paper studies a policy often used to defend a currency peg: raising short-term interest rates. The rationale for this policy is to stem demand for foreign reserves. Yet, this mechanism is absent from most monetary models. This paper develops a general equilibrium model with asset market frictions where this policy can be effective. The... READ MORE...

Publication date: May 2004
ISBN 9781451850789
$15.00

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