Fixing exchange rates A virtual quest for fundamentals

doi:10.1016/0304-3932(95)01210-4

Journal of Monetary Economics

Volume 36, Issue 1, August 1995, Pages 3-37

https://doi.org/10.1016/0304-3932(95)01210-4 Get rights and content

Abstract

Fixed exchange rates are less volatile than floating rates. But the volatility of macroeconomic variables such as money and output does not change very much across exchange rate regimes. This suggests that exchange rate models based only on macroeconomic fundamentals are unlikely to be very successful. It also suggests that there is no clear tradeoff between reduced exchange rate volatility and macroeconomic stability.

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^☆: Part of this work was completed while Rose was visiting the IMF Research Department and the IIES.

¹: We have benefited from discussions with Allan Drazen, Charles Engel, Peter Garber, Lars Svensson, Shang-Jin Wei, and comments from Oliver Blanchard, Richard Meese, Jeff Shafer, seminar participants at ECARE, IIES, the NBER Summer Institute, and the Universities of Edinburgh and Maryland. We especially thank Joseph Gagnon for valuable comments and pointing out a mistake. This is a shortened version of a NBER and CEPR working paper with the same title.

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Fixing exchange rates A virtual quest for fundamentals☆

Abstract

Journal of Monetary Economics

Journal of International Economics

Journal of International Economics

Journal of International Money and Finance

Expectations and exchange rate dynamics

Journal of Political Economy

An empirical exploration of exchange-rate target zones

Carnegie-Rochester Series on Public Policy

On the mark: A theory of floating exchange rates based on real interest differentials

American Economic Review