NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

What Happens When Countries Peg Their Exchange Rates? (The Real Side of Monetary Reforms)

Sergio Rebelo

NBER Working Paper No. 6168
Issued in September 1997
NBER Program(s):   EFG   IFM

There is a well-known set of empirical regularities that describe the experience of countries that peg their exchange rate as part of a macroeconomic adjustment program. Following the peg economies tend to experience an increase in GDP, a large expansion of production in the non-tradable sector, a contraction in tradables production, a current account deterioration, an increase in the real wage, a reduction in unemployment, a sharp appreciation in the relative price of non-tradables and a boom in the real estate market. This paper discusses how the changes in the expected behavior of fiscal policy that tend to be associated with the peg can contribute to explaining these facts.

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Document Object Identifier (DOI): 10.3386/w6168

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