Fixed vs. floating exchange rates: a dynamic general equilibrium analysis
In this study we contrast fixed and floating exchange rate regimes in a dynamic general equilibrium model. We find that the fundamental difference in the regimes is in the courses they imply for monetary policies. Because of policy coordination requirements, a tighter monetary policy needed to maintain a fixed exchange rate may necessitate a tightening in budget policy as well. We show that under some initial conditions voters or a social planner will favor one regime, but under other conditions they will favor the other. However, the choices of voters and a social planner are almost diametrically opposed.
|Date of creation:||1995|
|Date of revision:|
|Publication status:||Published in European Economic Review (Vol 42, 1998, pp. 1221-1249)|
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- Preston J. Miller & Neil Wallace, 1985. "International coordination of macroeconomic policies: a welfare analysis," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
- Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
- Sergio Rebelo, 1997.
"What Happens When Countries Peg Their Exchange Rates? (The Real Side of Monetary Reforms),"
NBER Working Papers
6168, National Bureau of Economic Research, Inc.
- Rebelo, Sérgio, 1997. "What Happens When Countries Peg Their Exchange Rates? (The Real Side of Monetary Reforms)," CEPR Discussion Papers 1692, C.E.P.R. Discussion Papers.
- Michael J. Stutzer, 1985. "The statewide economic impact of small-issue industrial revenue bonds," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
- Preston J. Miller & Richard M. Todd, 1992. "Real effects of monetary policy in a world economy," Staff Report 154, Federal Reserve Bank of Minneapolis.
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