The use of a crawling peg refers to
A) sequentially targeting different currencies as exchange rate pegs
B) repeated devaluations despite an ostensibly fixed exchange rate
C) an annual inflation target of 2%, which allows the price level to creep upward at a deliberate pace
D) an exchange rate band which moves over time according to a planned schedule
E) the gradually widening gap between the interest rates of 2 countries with a fixed exchange rate, due to a rising risk premium

Question

Quizplus · Accepted Answer

The use of a crawling peg refers to an exchange rate band that moves over time according to a planned schedule. This allows for some flexibility in the exchange rate without completely abandoning the fixed exchange rate regime. The central bank can adjust the exchange rate periodically to reflect changes in economic conditions, such as inflation, trade imbalances, or capital flows. The crawling peg can be either upward or downward, depending on whether the country wants to depreciate or appreciate its currency over time.

The Use of a Crawling Peg Refers to