Say you fix, enjoy and relax. The deleterious effect of peg announcements on fiscal discipline in emerging markets

This paper explores the impact of exchange rate pegs on the fiscal stance of emerging markets during the nineties. We empirically show that announcing the pegs had deleterious effects on fiscal discipline, while 'de facto' pegs which were not announced delivered superior fiscal outcomes. The evidence suggests that this was due to the initial positive credibility shock of the announcement, which allowed for easier and less costly access to the financing of fiscal deficits in emerging countries.