POLICY MEASURES TO AVOID A CURRENCY CRISIS

This paper considers a number of policy measures that may be used to preserve a fixed exchange rate. These are analysed in a model where a switch of exchange rate regime is triggered by an optimising policy-maker in response to extreme economic conditions. It is shown how a number of policy measures can be used to alter the balance between the costs and benefits of switching between regimes. These policy measures have both a direct effect on the policy-maker's choice of regime switching point and an indirect effect through private-sector expectations of a regime switch.