Hello,Is there a market consensus on which model to use for pegged currencies?Thanks

One model that has worked quite well historically is to measure the frequency of official pronouncements in the spirit of, "we are committed to maintaining the peg". Increased frequency and strength of such statements is a sure sign of growing difficulties in maintaining the peg. The costs of speculating on the peg's breaking rises concurrently however, so is unclear how helpful this might be if you're looking at the problem from a speculator's perspective. At best, if you have a bank deposit in the currency and country in question, this might be a helpful early warning signal to move the deposit into another currency, preferably abroad (if a peg break also threatens the health of the domestic banking system).

Krugman (1997):QuoteThe canonical currency-crisis model, as laid out initially by Krugman (1979) and refined by Flood and Garber (1984), was designed to mimic the [commodity price stabilization story described eralier]. The upward trend in the "shadow" price of foreign exchange - the price that would prevail after the speculative attack - was supplied by assuming that the government of the target economy was engaged in steady, uncontrollable issue of money to finance a budget deficit. Despite this trend, the central bank was assumed to try to hold the exchange rate fixed using a stock of foreign exchange reserves, which it stood ready to buy or sell at the target rate. Given this stylized representation of the situation, the logic of currency crisis was the same as that of speculative attack on a commodity stock[pile]. Suppose speculators were to wait until the reserves were exhausted in the natural course of events. At that point they would know that the price of foreign exchange, fixed up to now, would begin rising; this would make holding foreign exchange more attractive than holding domestic currency, leading to a jump in the exchange rate. But foresighted speculators, realizing that such a jump was in prospect, would sell domestic currency just before the exhaustion of reserves - and in so doing advance the date of that exhaustion, leading speculators to sell even earlier, and so on ... The result would be that when reserves fell to some critical level - perhaps a level that might seem large enough to finance years of payments deficits - there would be an abrupt speculative attack that would quickly drive those reserves to zero and force an abandonment of the fixed exchange rate. The canonical currency crisis model, then, explains such crises as the result of a fundamental inconsistency between domestic policies - typically the persistence of money-financed budget deficits - and the attempt to maintain a fixed exchange rate. This inconsistency can be temporarily papered over if the central bank has sufficiently large reserves, but when these reserves become inadequate speculators force the issue with a wave of selling. Unfortunately the theory does not precisely define what the 'critical level of reserves' is, so the model is difficult to apply in practice. But the FX reserves is clearly the thing to monitor. And the basic insight, that the peg holds quite well for a while, until suddenly one day it collapses is useful, I think.