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Are Fixed Exchange Rates the Problem and Flexible Exchange Rates the Cure?

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  • Paul Davidson

    ()
    (Department of Economics, The University of Tennessee)

Abstract

This paper explains why once non-probabilistic (i.e., a non-ergodic stochastic system) uncertainty is introduced into an orthodox freely flexible exchange rate model, the concept of the elasticity of expectations explains the open economy system will be extremely unstable except under the most stationary of economic circumstances. Alternative fixed exchange rate systems are proposed which will help stabilize the open economy--even when real economic forces are volatile.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume29/V29N2P259_268.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 29 (2003)
Issue (Month): 2 (Spring)
Pages: 259-268

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Handle: RePEc:eej:eeconj:v:29:y:2003:i:2:p:259-268

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Related research

Keywords: Exchange Rates; Fixed Exchange Rate;

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Cited by:
  1. Julio López & Ignacio Perrotini, 2006. "Tassi di cambio fluttuanti, deprezzamento valutario e domanda effettiva," Moneta e Credito, Economia civile, vol. 59(235), pages 233-256.
  2. Julio Lopez & Ignocio Perrotini Perrotini, 2006. "On floating exchange rates, currency depreciation and effective demand," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 59(238), pages 221-242.

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