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In Defence of Flexible Exchange Rates in a Small Open Capitalist Economy

In: Debates in Monetary Macroeconomics

Author

Listed:
  • Eric Kam

    (Toronto Metropolitan University)

Abstract

This chapter presents an argument for flexible exchange rates. The various ‘hard pegs’ for nominal exchange rates that have been tried have all failed, resulting in macroeconomic instability. In the real world, the only exchange rate regimes that have employed floating exchange rates or (at a minimum) fixed-but-adjustable exchange rates have been successful. Nonetheless, many theorists favour hard pegs or currency unions because they perform well in strongly abstract theoretical models. They are popular because they provide convenient mathematical simplifications in order to create closed-form solutions - in defiance of many of the realities on the ground.

Suggested Citation

  • Eric Kam, 2022. "In Defence of Flexible Exchange Rates in a Small Open Capitalist Economy," Springer Books, in: Steven Pressman & John Smithin (ed.), Debates in Monetary Macroeconomics, chapter 0, pages 217-235, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-11240-9_11
    DOI: 10.1007/978-3-031-11240-9_11
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