4. A peg is not credible when investors fear depreciation in the future. Why is...
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4. A peg is not credible when investors fear depreciation in the future. Why is the home interest rate always higher under a noncredible peg than under a credible peg? Why does that make it more costly to maintain a noncredible peg than a credible peg? Explain why a shift in investors' beliefs can cause a peg to break. Illustrate your answer using the IS-LM-FX diagram
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