9. A peg is not credible when investors fear depreciation in the future, despite official announcements. Why

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9. A peg is not credible when investors fear depreciation in the future, despite official announcements. Why is the home interest rate always higher under a noncredible peg than under a credible peg? Why does that make it more costly to maintain a noncredible peg than a credible peg? Explain why nothing more than a shift in investor beliefs can cause a peg to break.

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International Macroeconomics

ISBN: 9781319061722

4th Edition

Authors: Robert C Feenstra ,Alan M Taylor

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