Greed, Impatience and Exchange Rate Determination
AbstractThis paper offers a theoretical explanation for the determination of exchange rates under specific conditions which can/could be found in some OECD and newly industrialised countries. In an Obstfeld (1994) framework extended to incorporate government expropriation reneging on a fixed exchange rate promise unambiguously produces short term benefits, but long term losses. The choice of exchange rate regime depends on the combined effect of greediness (expropriation) and impatience (political instability), though not straightforwardly. In particular, similarly stable countries may choose different exchange rate regimes due to different levels of rent-seeking, for instance Mexico and Chile in the 1980s.
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Bibliographic InfoPaper provided by School Of Economics, University College Dublin in its series Working Papers with number 200605.
Length: 20 pages
Date of creation: 08 May 2006
Date of revision:
exchange rate regime; monetary policy; fiscal policy; expropriation; political instability; political economy;
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
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