What is it about?
The paper uses a theoretical model to find the critical juncture where financial liberalization and currency pegs become incompatible policy goals.
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Why is it important?
The South-East Asian Crisis of the late 1990s was characterized by sharp devaluations of currencies in countries whose currencies were pegged to the dollar or a basket of currencies. These countries were also liberalizing by opening up their capital markets. Theory and commentary suggested that liberalization and pegs may be incompatible policy goals. This paper shows at what point this becomes incompatible.
Perspectives
I learnt how to model fragility while doing this paper.
Professor Utpal Bhattacharya
Hong Kong University of Science and Technology
Read the Original
This page is a summary of: Financial liberalization and the stability of currency pegs, Journal of Corporate Finance, March 2005, Elsevier,
DOI: 10.1016/j.jcorpfin.2003.10.002.
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