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Inter American Development Bank, McGill University, and Universitat Pompeu Fabra; and Research Department, IMF respectively. We are grateful to Paul Masson, Maria-Ángels Oliva, Don Mathieson, Peter Tran, and to seminar participants at the IMF for comments.
An additional cost of the standard peg arises when devaluations are initially contractionary (see Edwards ), an effect that we do not consider and that favors the currency board over the standard peg.
We assume that the monetary authority acts as a disinterested agent for the government and use the two terms interchangeably.