Why is home interest rate higher under noncredible peg

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Reference no: EM131479993

Question: A peg is not credible when investors fear depreciation in the future, despite official announcements. 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 nothing more than a shift in investor beliefs can cause a peg to break.

Reference no: EM131479993

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