The combination proved unsustainable and the peg had to be given up on the downside in an environment of full-blown crisis with attendant (and domestically painful) requirements for both fiscal and monetary tightening.26 There is, of course, no single right answer to the choice of an exchange rate regime either for emerging or industrial economies.27 The right answer for a single country depends on that country’s particular circumstances.
The rise in yields was amplified by the demand for collateral on leveraged positions and derivatives of a number of defined-benefit pension funds (which use these investment strategies to balance expected pension payments with the performance of returns on their assets).