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Greed, Impatience and Exchange Rate Determination

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  • Frank Bohn

    (University College of Dublin)

Abstract

This paper offers a theoretical explanation for the determination of exchange rates under specific conditions which can/could be found in some OECD and newly industrialised countries. In an Obstfeld (1994) framework extended to incorporate government expropriation reneging on a fixed exchange rate promise unambiguously produces short term benefits, but long term losses. The choice of exchange rate regime depends on the combined effect of greediness (expropriation) and impatience (political instability), though not straightforwardly. In particular, similarly stable countries may choose different exchange rate regimes due to different levels of rent-seeking, for instance Mexico and Chile in the 1980s.

Suggested Citation

  • Frank Bohn, 2006. "Greed, Impatience and Exchange Rate Determination," Working Papers 200605, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:200605
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    File URL: http://www.ucd.ie/economics/research/papers/2006/WP06.05.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    exchange rate regime; monetary policy; fiscal policy; expropriation; political instability; political economy;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other

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