We examine monetary policy options for a small open economy where sovereign default might occur due to intertemporal insolvency. Under interest rate policy and floating exchange rates the equilibrium is indetermined. Under a fixed exchange rate the equilibrium is uniquely determined and...

In the past decade, foreign participation in local-currency bond markets in emerging countries increased dramatically. Additionally, emerging countries are increasingly deviating from inflation targeting regimes, managing their exchange rate and engaging in exchange-rate accumulation. In light...