When faced with speculative pressure on their currencies, policymakers often delay devaluations by spending billions of dollars in defense of a given exchange rate peg, only to succumb and devalue their currency later on. Using a political economy approach we argue that the interaction of...

The criteria of the theory of optimum currency areas suggest that many (most?) countries are not good candidates for either of the poles of genuinely fixed exchange rates or freely floating exchange rates. Thus many countries should have an interest in intermediate exchange rate regimes....