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Article: The Mechanics of a Successful Exchange Rate Peg: Lessons for Emerging Markets.(Statistical Data Included)
- Article from:
- Federal Reserve Bank of St. Louis Review
- Article date:
- September 1, 2001
- Author:
CopyrightCOPYRIGHT 2001 Federal Reserve Bank of St. Louis. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Exchange rate pegs collapsed in many countries in the 1990s, leading to dreary assessments of the merits of pegged exchange rate regimes. Whether one points to the failure of Mexico's peg in December 1994 or to the sharp devaluations in East Asia in 1997-98, in Russia in August 1998, and in Brazil in January 1999, the collapse of unilateral exchange rate pegs often preceded acute financial and macroeconomic crises. Despite recent failures, however, exchange rate pegs remain a prevalent policy choice. Calvo and Reinhart (2000) argue that the exchange rate volatility that accompanies a floating exchange rate regime is particularly onerous to emerging markets, and thus can be ...