Exchange Rate Policy under Sovereign Default Risk

Authors :: Schabert, Andreas
Publication Year :: 2011
Publisher :: Tinbergen Institute Amsterdam and Rotterdam, 2011.
Abstract: We examine monetary policy options for a small open economy where sovereign default might occur due to intertemporal insolvency. Under interest rate policy and floating exchange rates the equilibrium is indetermined. Under a fixed exchange rate the equilibrium is uniquely determined and independent of sovereign default.<br />Discussion Paper / SFB 823 ; 07/2011

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