Real Exchange Rate Variability Under Pegged And Floating Nominal Exchange Rate Systems: An Equilibrium Theory
AbstractThis paper proposes a new explanation for the greater variability of real exchange rates under pegged than under floating nominal exchange rate systems. The explanation hinges on the propensity of governments to use international trade restrictions and financial restrictions for balance-of-payments purposes under pegged exchange rates. In particular. these restrictions become more likely during periods of time when countries suffer losses of international reserves than might. without policy changes. lead to a balance-of-payments crisis. This covariation of restrictions with reserve changes implies that real exchange rates will vary less under pegged than under floating exchange rates.
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Bibliographic InfoPaper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 128.
Length: 42 pages
Date of creation: 1988
Date of revision:
Contact details of provider:
Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.
exchange rate ; international trade ; government policy;
Other versions of this item:
- Stockman, Alan C., 1988. "Real exchange-rate variability under pegged and floating nominal exchange-rate systems: An equilibrium theory," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 259-294, January.
- Alan C. Stockman, 1990. "Real Exchange Rate Variability under Pegged and Floating Nominal Exchange Rate Systems: An Equilibrium Theory," NBER Working Papers 2565, National Bureau of Economic Research, Inc.
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