Exchange Rate Determination: A Model of the Decisive Role of Central Bank Cooperation and Conflict
The paper traces the dangers in the closed economy perspective of a Â monetary policy focused on a domestic inflation goal under a clean Â float. Â Field evidence of the damage wrought from this perspective is Â reinforced by that from a laboratory experiment. Â The laboratory Â experiment avoids measurement errors to which econometric estimation Â is subject concerning omitted or inadequately proxied determinants, Â non-normally distributed errors, inadequate degrees of freedom, false Â assumptions of temporal independence and false synchronicity in Â decision response lags to stimuli. Our laboratory experiment also Â embeds a new theory of exchange rate determination involving the Â uncontroversial power of fully cooperating central banks to totally Â fix the exchange rate. The new model is within a broader theory that Â includes risk effects normally excluded, SKAT, the Stages of Â Knowledge Ahead Theory. We use SKAT to analyse outliers in our Â experimental results, and indicate some new directions and foci for Â econometric work. Â Our laboratory results point to the superiority of Â dollarisation, currency unions, a single world money over even dirty Â floats that include the exchange rate as an objective in its own right.
|Date of creation:||Nov 2007|
|Contact details of provider:|| Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany|
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de
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.:
- David Cobham, 2006. "The Overvaluation of Sterling Since 1996: How the Policy makers Responded and Why," Economic Journal, Royal Economic Society, vol. 116(512), pages 185-207, 06.
- Frankel, Jeffrey A, 1996.
"Recent Exchange-Rate Experience and Proposals for Reform,"
American Economic Review,
American Economic Association, vol. 86(2), pages 153-158, May.
- Frankel, Jeffrey A., 1996. "REcent Exchange Rate Experience and Proposals for Reform," Center for International and Development Economics Research, Working Paper Series qt62f2p0w1, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Frankel, Jeffrey A., 1996. "Recent Exchange Rate Experience and Proposals for Reform," Center for International and Development Economics Research (CIDER) Working Papers 233422, University of California-Berkeley, Department of Economics.
- Jeffrey A. Frankel., 1996. "Recent Exchange Rate Experience and Proposals for Reform," Center for International and Development Economics Research (CIDER) Working Papers C96-060, University of California at Berkeley.
- Kreps, David M. & Porteus, Evan L., 1979. "Temporal von neumann-morgenstern and induced preferences," Journal of Economic Theory, Elsevier, vol. 20(1), pages 81-109, February.
- Frankel, Jeffrey A & Froot, Kenneth A, 1987. "Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," American Economic Review, American Economic Association, vol. 77(1), pages 133-153, March.
- Frankel, Jeff & Froot, Ken, 1986. "Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," Department of Economics, Working Paper Series qt1972q8wm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- K. Borch, 1969. "A Note on Uncertainty and Indifference Curves," Review of Economic Studies, Oxford University Press, vol. 36(1), pages 1-4.
- David Cobham, 2002. "The Exchange Rate as a Source of Disturbances: The UK 1979-2000," National Institute Economic Review, National Institute of Economic and Social Research, vol. 181(1), pages 96-112, July.
- Allais, Maurice, 1972. "Forgetfulness and Interest," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 4(1), pages 40-73, Part I Fe.
- Kilponen, Juha & Leitemo, Kai, 2007. "Discretion and the transmission lags of monetary policy," Research Discussion Papers 8/2007, Bank of Finland.
- Harsanyi, John C, 1978. "Bayesian Decision Theory and Utilitarian Ethics," American Economic Review, American Economic Association, vol. 68(2), pages 223-228, May.
- Rakesh Bissoondeeal & Jane Binner & Thomas Elger, 2009. "Monetary models of exchange rates and sweep programs," Applied Financial Economics, Taylor & Francis Journals, vol. 19(14), pages 1117-1129.
- Dominguez, Kathryn M & Frankel, Jeffrey A, 1993. "Does Foreign-Exchange Intervention Matter? The Portfolio Effect," American Economic Review, American Economic Association, vol. 83(5), pages 1356-1369, December.
- Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory and Anticipatory Feelings," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 55-79.
- Robin E. Pope, 2001. "Evidence of Deliberate Violations of Dominance Due to Secondary Satisfaction - Attraction to Chance," Homo Oeconomicus, Institute of SocioEconomics, vol. 18, pages 47-76.
- Thomas J. Courchene, 1999. "Alternative North American Currency Arrangements: A Research Agenda," Canadian Public Policy, University of Toronto Press, vol. 25(3), pages 308-314, September.
- Lucas Papademos, 2006. "Policy-making in EMU: strategies, rules and discretion," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(1), pages 25-38, 01.
- 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.
- Jeffrey A. Frankel & C. Fred Bergsten & Michael L. Mussa, 1994. "Exchange Rate Policy," NBER Chapters,in: American Economic Policy in the 1980s, pages 293-366 National Bureau of Economic Research, Inc.
- Sordi, Serena & Vercelli, Alessandro, 2006. "Financial fragility and economic fluctuations," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 543-561, December.
- Hausken, Kjell & Plumper, Thomas, 2002. "Containing Contagious Financial Crises: The Political Economy of Joint Intervention into the Asian Crisis," Public Choice, Springer, vol. 111(3-4), pages 209-236, June.
- Wang, Yajie & Hui, Xiaofeng & Soofi, Abdol S., 2007. "Estimating renminbi (RMB) equilibrium exchange rate," Journal of Policy Modeling, Elsevier, vol. 29(3), pages 417-429.
- Jeffrey A. Frankel, 1985. "The Dazzling Dollar," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 199-217.
- Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
- Bonpasse, Morrison, 2006. "The Single Global Currency: Common Cents for the World," MPRA Paper 1175, University Library of Munich, Germany. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:bon:bonedp:bgse19_2007. 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: (BGSE Office)
If references are entirely missing, you can add them using this form.