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On floating exchange rates, currency depreciation and effective demand: a comment

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  • Mario Sarcinelli

    (Università degli Studi di Ròma "La Sapienza", Dipartimento di Scienze Economiche, Roma)

Abstract

I certainly agree with the authors on the main point, which is that flexible exchange rates do not result in an automatic adjustment that brings equilibrium with full employment. What I would argue is that flexible exchange rates, however, may be more advantageous than those fixed and that the management of the exchange rate to achieve domestic policy objectives, although useful in some circumstances, it should become the norm in a world in which financial events affect frequently on real variables. In my view, the intervention on the foreign exchange market by the central bank should have a low frequency and used as a signal to prevent upward or downward trend, which of course requires the cooperation and support from other banks central. With regard to the measures compatible with the market on the movement of capital, the use of them should be even more cautious. However, a management for (rare) exception of the exchange rate is certainly possible.

Suggested Citation

  • Mario Sarcinelli, 2006. "On floating exchange rates, currency depreciation and effective demand: a comment," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 59(239), pages 389-395.
    • Handle: RePEc:psl:bnlaqr:2006:44
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    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9875/9757
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    References listed on IDEAS

    as
    1. Thomas I. Palley, 2003. "The Economics of Exchange Rates and the Dollarization Debate : The Case Against Extremes," International Journal of Political Economy, Taylor & Francis Journals, vol. 33(1), pages 61-82.
    2. Edwards, Sebastian & Levy Yeyati, Eduardo, 2005. "Flexible exchange rates as shock absorbers," European Economic Review, Elsevier, vol. 49(8), pages 2079-2105, November.
    3. 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.
    4. Guillermo A. Calvo & Frederic S. Mishkin, 2003. "The Mirage of Exchange Rate Regimes for Emerging Market Countries," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 99-118, Fall.
    5. 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.
    6. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
    7. Steven B. Kamin & Marc Klau, 1997. "Some multi-country evidence on the effects of real exchange rates on output," BIS Working Papers 48, Bank for International Settlements.
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    More about this item

    Keywords

    Currency; Exchange Rate;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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