Persistent, Nonfundamental Exchange Rate Fluctuations
A trading-post model of money is used to show how exchange rates can be affected by extrinsic uncertainty. With no uncertainty in fundamentals, we demonstrate that there exist equilibria where exchange rates as well as consumption allocations follow a stationary random process. The uctuations are permanent, and they affect economic welfare. These findings also apply when the currency supplies grow at different rates. Then, the only stationary equilibria in which both monies are valued are those with uctuations: the real value of the currencies follow a stationary process, and the average return on the fast-growing currency is lower than that of the slow-growing currency. (Copyright: Elsevier)
Volume (Year): 7 (2004)
Issue (Month): 3 (July)
|Contact details of provider:|| Postal: Marina Azzimonti, Department of Economics, Stonybrook University, 10 Nicolls Road, Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/red/
More information through EDIRC
|Order Information:|| Web: https://www.economicdynamics.org/subscription-information/ Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Shubik, Martin, 1990.
"A game theoretic approach to the theory of money and financial institutions,"
Handbook of Monetary Economics,
in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 5, pages 171-219
- Martin Shubik, 1986. "A Game Theoretic Approach to the Theory of Money and Financial Institutions," Cowles Foundation Discussion Papers 805, Cowles Foundation for Research in Economics, Yale University.
- Martin Shubik, 2000.
"The Theory of Money,"
Cowles Foundation Discussion Papers
1253, Cowles Foundation for Research in Economics, Yale University.
- Marco Bassetto, 2002.
"A Game-Theoretic View of the Fiscal Theory of the Price Level,"
Econometric Society, vol. 70(6), pages 2167-2195, November.
- Marco Bassetto, 2001. "A game-theoretic view of the fiscal theory of the price level," Working Papers 612, Federal Reserve Bank of Minneapolis.
- Marco Bassetto, 2000. "A Game-Theoretic View of the Fiscal Theory of the Price Level," Econometric Society World Congress 2000 Contributed Papers 1492, Econometric Society.
- King, Robert G. & Wallace, Neil & Weber, Warren E., 1992. "Nonfundamental uncertainty and exchange rates," Journal of International Economics, Elsevier, vol. 32(1-2), pages 83-108, February.
- Manuelli, Rodolfo E & Peck, James, 1990. "Exchange Rate Volatility in an Equilibrium Asset Pricing Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 559-74, August.
- Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
- John Kareken & Neil Wallace, 1981. "On the Indeterminacy of Equilibrium Exchange Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 96(2), pages 207-222.
When requesting a correction, please mention this item's handle: RePEc:red:issued:v:7:y:2004:i:3:p:687-706. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.