Crawling peg

In macroeconomics, crawling peg is an exchange rate regime that allows depreciation or appreciation to happen gradually. It is usually seen as a part of a fixed exchange rate regime. The system is a method to fully use the key attributes of the fixed exchange regimes, as well as the flexibility of the floating exchange rate regime. The system is shaped to peg at a certain value, but at the same time is designed to "glide" to respond to external market uncertainties. To react to external pressure (such as interest rate differentials or changes in foreign-exchange reserves) to appreciate or depreciate the exchange rate, the system can have moderately-sized, frequent exchange rate changes to ensure that the economic dislocation is minimized. Some central banks use a formula that triggers a change when certain conditions are met, while others prefer not to use a preset formula and frequently change the exchange rate to discourage speculations. The main advantages of a crawling peg are that it avoids economic instability as a result of infrequent and discrete adjustments (fixed exchange rate), and it minimizes the rate of uncertainty and volatility since the fluctuation in the exchange rate is kept minimal (floating exchange regime). For example, Mexico used a crawling peg to address inflation in the peso crisis. It transitioned from a fixed exchange rate in the 1990s without the instability of rapid devaluation. In practice, the system may not be an "ideal system" under certain scenarios. For instance, if there are substantial currency flows that may affect the exchange rate, monetary authorities may be "forced" to accelerate currency realignment, leading to substantial unsystematic costs to market players. In practice, only a few countries have adopted crawling pegs. E. Ray Canterbery proposes an idea of a delayed peg to eliminate many disadvantages of the crawling peg model. The delayed peg uses a wideband for exchange-rate fluctuations, while the band is allowed to move when foreign exchange liabilities accumulate (at a secret but predetermined rate).

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Fixed exchange rate system

A fixed exchange rate, often called a pegged exchange rate, is a type of exchange rate regime in which a currency's value is fixed or pegged by a monetary authority against the value of another currency, a basket of other currencies, or another measure of value, such as gold. There are benefits and risks to using a fixed exchange rate system. A fixed exchange rate is typically used to stabilize the exchange rate of a currency by directly fixing its value in a predetermined ratio to a different, more stable, or more internationally prevalent currency (or currencies) to which the currency is pegged.

Inflation targeting

In macroeconomics, inflation targeting is a monetary policy where a central bank follows an explicit target for the inflation rate for the medium-term and announces this inflation target to the public. The assumption is that the best that monetary policy can do to support long-term growth of the economy is to maintain price stability, and price stability is achieved by controlling inflation. The central bank uses interest rates as its main short-term monetary instrument.

Managed float regime

Managed float regime is an international financial environment in which exchange rates fluctuate from day to day, but central banks attempt to influence their countries' exchange rates by buying and selling currencies to maintain a certain range. The peg used is known as a crawling peg. In an increasingly integrated world economy, the currency rates impact any given country's economy through the trade balance. In this aspect, almost all currencies are managed since central banks or governments intervene to influence the value of their currencies.

Earthquake Nucleation along Faults with Heterogeneous Weakening Rate

Jean-François Molinari, Marie Estelle Solange Violay, Thibault Didier Roch, Mathias Alexandre David Lebihain

The transition from quasi-static slip growth to dynamic rupture propagation constitutes one possible scenario to describe earthquake nucleation. If this transition is rather well understood for homogeneous faults, how the friction properties of multiscale ...

2021

Quantifying the Benefits of Labor Mobility in a Currency Union

Unemployment differentials are bigger in Europe than in the United States. Migration responds to unemployment differentials, though the response is smaller in Europe. Mundell (1961) argued that factor mobility is a precondition for a successful currency un ...

2018

Exchange Rates and Fiscal Adjustments; Evidence from the OECD and Implications for the EMU

Luisa Lambertini

This paper investigates whether monetary and exchange rate policies are important for the success of major fiscal adjustments. We assess their role controlling for other determinants of success identified in the literature, including the size and compositi ...

2005

Exchange Arrangements and Restrictions FIN-523: Global business environment

Delves into the 2021 IMF report on exchange arrangements and restrictions, exploring various exchange rate systems and the effects of fiscal policies.

Output and Exchange Rates: Short Run Dynamics FIN-523: Global business environment

Explores short-run dynamics of output and exchange rates in a global business environment.