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Quasi-fundamental exchange rate variation

Author

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  • Steven Russell

Abstract

This paper uses a general equilibrium model to study the determination of the exchange rate in an economy with fundamental uncertainty. The model has steady state equilibria in which the exchange rate is constant. These equilibria may coexist with “quasi-fundamental” equilibria – nonstationary equilibria in which the exchange rate displays stochastic fluctuations that are correlated with the fluctuations in fundamental random variables. The quasi-fundamental equilibria are Pareto dominated by the corresponding constant-exchange-rate steady states. They also converge to these steady states, inevitably or with positive probability. Copyright Springer-Verlag Berlin Heidelberg 2003

Suggested Citation

  • Steven Russell, 2003. "Quasi-fundamental exchange rate variation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(1), pages 111-140, August.
    • Handle: RePEc:spr:joecth:v:22:y:2003:i:1:p:111-140
    DOI: 10.1007/s00199-002-0289-4
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    Citations

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    Cited by:

    1. Clain-Chamosset-Yvrard, Lise & Kamihigashi, Takashi, 2017. "International transmission of bubble crashes in a two-country overlapping generations model," Journal of Mathematical Economics, Elsevier, vol. 68(C), pages 115-126.
    2. Mauro Bambi & Sara Eugeni, 2021. "Nominal exchange rate determination and dynamics in an OLG framework," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(1), pages 93-132, July.
    3. Alexandre Cunha, 2013. "On the relevance of floating exchange rate policies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(2), pages 357-382, June.

    More about this item

    Keywords

    Keywords and Phrases: Exchange rates; Excessive volatility; Sunspot equilibria.; JEL Classification Numbers: E32; F31.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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