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On the Indeterminacy of Equilibrium Exchange Rates

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  • John Kareken
  • Neil Wallace

Abstract

In this paper we consider a particular international economic policy regime: the laissez-faire regime, the distinguishing features of which are unrestricted portfolio choice and floating exchange rates. And as we show, this regime, although favored by many economists, is not economically feasible. It does not have a determinate equilibrium. That is an implication of an overlapping-generations model. More basically, it is an implication of the notion that money is wanted only in order to accomplish trades.

Suggested Citation

  • John Kareken & Neil Wallace, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 96(2), pages 207-222.
    • Handle: RePEc:oup:qjecon:v:96:y:1981:i:2:p:207-222.
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    1. Recursive Macroeconomic Theory

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