"This paper addresses the impact of monetary policy on exchange rates during financial crises. Some observers have argued that a tightening of monetary policy is necessary to stabilize the exchange rate, restore confidence, and lay the groundwork for an eventual recovery of economic activity....

Exchange-rate based stabilizations, while useful in accelerating the disinflation process, typically lead to overvalued exchange rates and large current account deficits. These factors, in turn, make it difficult to sustain exchange rate pegs, placing heavy demands upon monetary policy to...

This paper addresses the merits of using the parallel exchange rate as a guide to setting the official exchange rate. Ideally, policymakers would set the exchange rate at the level that would balance trade and sustainable capital flows--that level is referred to as the equilibrium exchange rate....

In the past decade, some observers have noted an unusual aspect of the Mexican peso's behavior: During periods when the U.S. dollar has risen (fallen) against other major currencies such as the euro, the peso has risen (fallen) against the dollar. Very few other currencies display this behavior....