How commitment can make easier to keep inflation

Reference no: EM131835450

Question: We said that "an effective peg requires a very serious commitment to a high level of monetary and fiscal stability." As in our discussion of monetary policy, people's beliefs about what government might do in the future put limits on what governments should do today. Discuss how "commitment" can keep an exchange rate stable. Compare with how commitment can make it easier to keep inflation low. What can a government do in these situations to convince foreign investors and domestic citizens that it will keep its commitments? (Certainly, there is more than one good way to answer this question: The problem of creating commitment is an active area of research across the social sciences.)

Reference no: EM131835450

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