Managed Floats to Damp Shocks like 1982-5 and 2006-9: Field and Laboratory Evidence for Chinese Interest in a Single World Currency
This paper’s field evidence is: (1) many official sectors rapidly forget the damage of the 1982-85 exchange rate liquidity crisis and reverted to what caused that crisis, namely a closed economy clean floats perspective; and (2) the 2006-2008/9 exchange rate liquidity shock would have been more drastic but for central bank currency swaps. This evidence is bolstered by a laboratory experiment that incorporates more aspects of real world complexity and more different sorts of official and private sector agents than are feasible in econometric or algebraic investigations and employs a new central bank cooperation-conflict model of exchange rate determination , and is within an umbrella theory of Pope, namely SKAT, the Stages of Knowledge Ahead Theory. SKAT allows for risk effects from stages omitted in normal models, including those from (a) difficulties of agents in evaluating alternatives in a complex environment in which the assumed maximization of expected utility is impossible; and (b) preference for safety and reliability is not trivialized. Our joint field plus laboratory evidence indicates that official sectors should maintain an international exchange rate oriented perspective, or better yet, a single world currency as recommended by Zhou Xiaochuan, head of the People’s Bank of China. To avoid rapid forgetting of havoc from isolationist clean floats and the value of stable exchange rates, a new syllabus, as under the SKAT umbrella, is fundamental in the education of official sector members in order to furnish them with a coherent alternative intellectual framework to current university education that excludes liquidity crises.
|Date of creation:||Oct 2009|
|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
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.:
- Pope, Robin & Leitner, Johannes & Leopold-Wildburger, Ulrike, 2009. "Expected utility versus the changes in knowledge ahead," European Journal of Operational Research, Elsevier, vol. 199(3), pages 892-901, December.
- 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.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2004.
"The Modern History of Exchange Rate Arrangements: A Reinterpretation,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 119(1), pages 1-48.
- Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
- Charles Engel & Nelson C. Mark & Kenneth D. West, 2008.
"Exchange Rate Models Are Not As Bad As You Think,"
in: NBER Macroeconomics Annual 2007, Volume 22, pages 381-441
National Bureau of Economic Research, Inc.
- 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.
- 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.
- Pope, Robin E., 1991. "The delusion of certainty in Savage's sure-thing principle," Journal of Economic Psychology, Elsevier, vol. 12(2), pages 209-241, June.
- Burt, John & Kaen, Fred R & Booth, G Geoffrey, 1977. "Foreign Exchange Market Efficiency under Flexible Exchange Rates," Journal of Finance, American Finance Association, vol. 32(4), pages 1325-1330, September.
- Alberto Alesina & Alexander Wagner, 2003.
"Choosing (And Reneging On) Exchange Rate Regimes,"
Harvard Institute of Economic Research Working Papers
2008, Harvard - Institute of Economic Research.
- Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279-279.
- David Hendry & Grayham E. Mizon, 2010. "On the Mathematical Basis of Inter-temporal Optimization," Economics Series Working Papers 497, University of Oxford, Department of Economics.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2010.
"From Financial Crash to Debt Crisis,"
NBER Working Papers
15795, National Bureau of Economic Research, Inc.
- Carol L. Osler, 2003. "Currency Orders and Exchange Rate Dynamics: An Explanation for the Predictive Success of Technical Analysis," Journal of Finance, American Finance Association, vol. 58(5), pages 1791-1820, October.
- Wang, Peijie & Jones, Trefor, 2002. "Testing for efficiency and rationality in foreign exchange markets--a review of the literature and research on foreign exchange market efficiency and rationality with comments," Journal of International Money and Finance, Elsevier, vol. 21(2), pages 223-239, April.
- Rapp, Tammy A. & Sharma, Subhash C., 1999. "Exchange rate market efficiency: across and within countries," Journal of Economics and Business, Elsevier, vol. 51(5), pages 423-439, September.
- 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.
- T. W.Swan, 1960. "Economic Control In A Dependent Economy," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 51-66, 03.
- Sordi, Serena & Vercelli, Alessandro, 2006. "Financial fragility and economic fluctuations," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 543-561, December.
- Walsh, Vivian, 1996. "Rationality, Allocation, and Reproduction," OUP Catalogue, Oxford University Press, number 9780198287728.
When requesting a correction, please mention this item's handle: RePEc:bon:bonedp:bgse26_2009. 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.