TY  - JOUR
AU  - Calvo,Guillermo A.
AU  - Reinhart,Carmen M.
TI  - Fixing for Your Life
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8006
PY  - 2000
Y2  - November 2000
UR  - http://www.nber.org/papers/w8006
L1  - http://www.nber.org/papers/w8006.pdf
N1  - Author contact info:
Guillermo A. Calvo
Columbia University
School of International and Public Affairs
420 West 118th St, Room 1303B
MC3332
New York, NY 10027
Tel: 212/854-4264
E-Mail: gc2286@columbia.edu

Carmen M. Reinhart
Peterson Institute for International Economics
1750 Massachusetts Avenue, NW
Washington, DC 20036-1903
Tel: 202-454-1325
Fax: 202-659-3225
E-Mail: creinhart@piie.com
AB  - The Asian crisis took place against a background of exchange rate regimes that were characterized as soft pegs. This has led many analysts to conclude that  the peg did it' and that emerging markets (EMs) should  just say no' to pegged exchange rates. We present evidence that EMs are very different from developed economies in key dimensions that play a key role when it comes to the choice of exchange rate regime--floating for EMs is no panacea.  In EMs currency crashes are contractionary, the adjustments in the current account are far more acute. Credibility and market access, as captured in the behavior of credit ratings and interest rates, is adversely affected by devaluations or depreciations.   Exchange rate volatility is more damaging to trade and the passthrough from exchange rate swings to inflation is far higher in EMs.  These differences between emerging and developed economies may explain EMs reluctance to tolerate large exchange rate movements.  In a simple framework we illustrate why large exchange rate swings are feared when access to international credit may be lost.
ER  -