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Are Fixed Exchange Rates the Problem and Flexible Exchange Rates the Cure?

Author

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  • Paul Davidson

    (Department of Economics, The University of Tennessee)

Abstract

This paper explains why once non-probabilistic (i.e., a non-ergodic stochastic system) uncertainty is introduced into an orthodox freely flexible exchange rate model, the concept of the elasticity of expectations explains the open economy system will be extremely unstable except under the most stationary of economic circumstances. Alternative fixed exchange rate systems are proposed which will help stabilize the open economy--even when real economic forces are volatile.

Suggested Citation

  • Paul Davidson, 2003. "Are Fixed Exchange Rates the Problem and Flexible Exchange Rates the Cure?," Eastern Economic Journal, Eastern Economic Association, vol. 29(2), pages 259-268, Spring.
    • Handle: RePEc:eej:eeconj:v:29:y:2003:i:2:p:259-268
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume29/V29N2P259_268.pdf
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    Citations

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    Cited by:

    1. Julio Lopez & Ignocio Perrotini Perrotini, 2006. "On floating exchange rates, currency depreciation and effective demand," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 59(238), pages 221-242.
    2. Julio López & Ignacio Perrotini, 2006. "Tassi di cambio fluttuanti, deprezzamento valutario e domanda effettiva," Moneta e Credito, Economia civile, vol. 59(235), pages 233-256.
    3. Julio Lopez & Ignocio Perrotini Perrotini, 2006. "On floating exchange rates, currency depreciation and effective demand," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 59(238), pages 221-242.

    More about this item

    Keywords

    Exchange Rates; Fixed Exchange Rate;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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