The Devil you Know: Pegs vs Floats with Uncertain Outcomes

Theory predicts that a fixed exchange rate regime will be abandoned after a sizable economic shock as currency devaluation could stimulate exports and output. However, devaluation is risky as the new level of the exchange rate and the rate of inflation cannot be predicted. We show that this uncertainty creates resistance to devaluation. Policymakers prefer to maintain the fixed exchange rate and to undergo internal adjustment. We illustrate the point theoretically and provide supporting evidence from Bulgaria's currency board.     

Beyond Borders: The Euro Crisis and Public Support for Monetary Integration in East Africa

We show that economic experiences in one part of the world affect proposed policies elsewhere. Specifically, we find that the recent crisis in the European Monetary Union (EMU) has impacted negatively the public support for the new proposed monetary union in the East African Community (EAC), with a more pronounced effect for less educated Kenyans. That external effect is robust to controlling for an array of other factors such as the expected economic benefits from the union, the desire to gain international influence as part of a larger community and the memory of an earlier failed EAC monetary union.