....The gold standard example is particularly illuminating because it shows how credible policies in certain areas lead to "incredible" policies in others. Because the gold peg was credibly sustained, price stability could not be credible. Shocks to the price level could not be controlled because there was no longer a specific mechanism to control prices. By similar logic, India's attempts to stop the devaluation of the rupee are not credible because there's no infinite forex intervention that can stop the rupee's slide without also contracting monetary policy. Given that the Reserve Bank of India has shown no signs it wishes to tighten monetary policy, the forex intervention is not credible because the mechanism is not infinite......
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