An Exploration in the Theory of Exchange-Rate Regimes

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An Exploration in the Theory of Exchange-Rate Regimes

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Title: An Exploration in the Theory of Exchange-Rate Regimes
Author: Helpman, Elhanan
Citation: Helpman, Elhanan. 1981. An exploration in the theory of exchange-rate regimes. Journal of Political Economy 89(5): 865-890.
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Abstract: Three exchange-rate regimes--a float, a one-sided peg, and a cooperative peg--are evaluated and compared in terms of efficiency and welfare levels. The framework of analysis embodies country-specific monies, with the money of each country being used to transact in its commodity markets and its currency-denominated bonds. Welfare levels depend only on consumption levels. In the presence of perfect foresight all equilibrium allocations are Pareto efficient. In a floating exchange-rate regime the perfect foresight equilibrium allocation coincides with an equilibrium of a costless barter economy. The same result holds in a one-sided peg if the pegging country's exchange-rate stabilizing authority breaks even over time. In a cooperative peg regime there is a different equilibrium allocation for each combination of exchange-rate levels and monetary policies. Problems of policy coordination and conflicts in desired monetary policies are discussed.
Published Version: doi:10.1086/261011
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3445091

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  • FAS Scholarly Articles [6463]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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