Transparency, reputation, and credibility under floating and pegged exchange rates

Berthold Herrendorf

Research output: Contribution to journalArticlepeer-review

23 Scopus citations


This paper shows that if the cost of importing foreign inflation and real exchange rate shocks are not too high, then the equilibrium nominal exchange rate regime for a country with a credibility problem is a peg, under which credibility is higher and inflation is lower than under a float. This holds true although devaluations of the pegged rate are assumed to be costless. The reason is that as realized inflation is not perfectly controllable, planned inflation under a float is private information. In contrast, since the exchange rate can be perfectly controlled, pegging resolves the private information problem, is more transparent, and makes reputation more effective.

Original languageEnglish (US)
Pages (from-to)31-50
Number of pages20
JournalJournal of International Economics
Issue number1
StatePublished - Oct 1999
Externally publishedYes


  • Credibility
  • Exchange rate regime choice
  • Private information
  • Reputation
  • Transparency

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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