NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Mirage of Fixed Exchange Rates

Maurice Obstfeld, Kenneth Rogoff

NBER Working Paper No. 5191
Issued in July 1995
NBER Program(s):   IFM   ME

This paper discusses the profound difficulties of maintaining fixed exchange rates in a world of expanding global capital markets. Contrary to popular wisdom, industrialized-country monetary authorities easily have the resources to defend exchange parities against virtually any private speculative attack. But if their commitment to use those resources lacks credibility with markets, the costs to the broader economy of defending an exchange-rate peg can be very high. The dynamic interplay between credibility and commitment is illustrated by the 1992 Swedish and British crises and the 1994-95 Mexican collapse. We also discuss the small number of successful fixers.

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Document Object Identifier (DOI): 10.3386/w5191

Published: Journal of Economic Perspectives, Fall 1995, Volume 9, #4, pp. 73-96 citation courtesy of

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