The Politics of Surprise Devaluations: Modelling Motives for Giving Up a Peg
Source
Jahrbuecher Fuer Nationaloekonomie und Statistik, 5+6, 233, (2013), pp. 562-574ISSN
Publication type
Article / Letter to editor

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Organization
Internationale economie
Journal title
Jahrbuecher Fuer Nationaloekonomie und Statistik
Volume
vol. 5+6
Issue
iss. 233
Languages used
English (eng)
Page start
p. 562
Page end
p. 574
Subject
Distributional Conflicts in a Globalizing World: Consequences for State-Market-Civil Society ArrangementsAbstract
Planned ‘‘surprise’’ devaluations are often spurred by non-economic circumstances: a rentseeking government; political instability; or the opportunity to put the blame on a predecessor government. In this paper, these aspects are incorporated in the monetary and fiscal policy framework first suggested by Alesina and Tabellini (1987). It is shown that reneging on a fixed exchange rate promise unambiguously produces short term benefits, but long run losses. This leads to a non-straightforward trade-off between greediness (propensity for expropriation) and political stability (which implies a low time preference). The findings are empirically relevant and theoretically robust to extensions.
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- Academic publications [232165]
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- Nijmegen School of Management [18283]
- Open Access publications [82695]
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