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We explore a model intended to capture the interaction between exchange rate policy, fiscal policy, and outright default on foreign-currency denominated debt. We examine how the exchange rate affects the supply of short-term debt facing the government. We show that under a credible hard peg (currency board), default is a more likely outcome, even without an exceptionally large short-term debt, precisely because a devaluation is not an option. In a more conventional fixed peg, it can be optimal for the government to choose a level of the exchange rate that would be likely to result in partial or complete debt default. Depending on the exchange rate regime, multiple equilibria exist, in one of which the interest rate is high, the exchange rate is overvalued, output is low, and default is high. Under a hard peg, there is a unique equilibrium.

Exports and Imports --- Foreign Exchange --- Central Banks and Their Policies --- Fiscal Policy --- International Monetary Arrangements and Institutions --- International Lending and Debt Problems --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Currency --- Foreign exchange --- International economics --- Exchange rates --- Exchange rate policy --- Real exchange rates --- Debt default --- Exchange rate adjustments --- External debt --- Debts, External --- Mexico

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Under free capital mobility, a high-inflation country pursuing a nonaccommodating exchange rate policy will have higher real interest rates than its lower-inflation trading partners as long as that policy is not credible. If the policy gains credibility prior to inflation convergence, the sign of the real interest rate differential may be reversed. Developments in interest rate differentials and capital and reserve flows suggest that Italy’s nonaccommodating exchange rate policy has become significantly more credible in 1989-90. As improved credibility further limits their monetary autonomy, the Italian authorities will have to rely more on fiscal and incomes policies to promote disinflation.

Banks and Banking --- Foreign Exchange --- Inflation --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Interest Rates: Determination, Term Structure, and Effects --- Price Level --- Deflation --- Currency --- Foreign exchange --- Finance --- Macroeconomics --- Exchange rate policy --- Real interest rates --- Exchange rates --- Real exchange rates --- Financial services --- Prices --- Interest rates --- Italy

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Following the 1997-98 financial turmoil, crisis countries in Asia moved toward either floating or fixed exchange rate systems, reinforcing the bipolar view of exchange rate regimes and the "hollow middle" hypothesis. But some academics have claimed that the crisis countries' policies have been similar in the post- and pre-crisis periods. This paper analyzes the evidence and concludes that, except for Malaysia, which adopted a hard peg and imposed capital controls, the other crisis countries are floating more than before, though less than "real" floaters do. Further, the crisis countries' policies during the post-crisis period can be justified on second-best arguments.

Finance: General --- Financial Risk Management --- Foreign Exchange --- Current Account Adjustment --- Short-term Capital Movements --- Studies of Particular Policy Episodes --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Financial Crises --- International Financial Markets --- Currency --- Foreign exchange --- Economic & financial crises & disasters --- Finance --- Exchange rates --- Exchange rate policy --- Exchange rate arrangements --- Financial crises --- Currency markets --- Financial markets --- Foreign exchange market --- Malaysia

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This Background Papers study analyzes output performance of Vietnam in transition years. Output performed surprisingly well during the core transition years. During 1988–89, output growth reached an average of 6–7 percent per year, well above the average of 4–5 percent achieved since the unification of North and South Vietnam in 1975. Output growth in these two years was driven by strong performance in the agriculture and services sectors. During the second phase of the transition, 1990–91, output growth slowed somewhat to 5–6 percent.

Exports and Imports --- Foreign Exchange --- Inflation --- Price Level --- Deflation --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- International Investment --- Long-term Capital Movements --- Currency --- Foreign exchange --- Macroeconomics --- Finance --- Exchange rates --- Exchange rate policy --- Foreign direct investment --- Prices --- Balance of payments --- Investments, Foreign --- Vietnam

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This paper evaluates the Philippines’ experience with different exchange regimes since 1970. It argues that the shift to a flexible regime was crucial to restoring external viability and generating an export-led economic take-off, but that mixed performance in meeting money targets and asymmetric policy reactions to exchange rate pressures have resulted in an uneven inflation performance. Since adoption of a firm nominal anchor for monetary policy would contribute to a more effective control of inflation and thereby to better prospects for sustained growth, the merits of three monetary strategy options are reviewed: stricter adherence to a money supply rule, adoption of an exchange rate peg, and a switch to direct inflation targeting.

Foreign Exchange --- Inflation --- Money and Monetary Policy --- Monetary Policy --- Central Banks and Their Policies --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Price Level --- Deflation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Currency --- Foreign exchange --- Monetary economics --- Macroeconomics --- Exchange rates --- Exchange rate policy --- Monetary base --- Inflation targeting --- Prices --- Money --- Monetary policy --- Money supply --- Philippines