International financial markets' influence on the welfare performance of alternative exchange rate regimes

Mathias Hoffmann

No 2008,27, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank, Research Centre

Abstract: In this paper Friedmann (1953) and Mundell´s (1968) position favouring flexible over alternative exchange rate regimes is reassessed in the context of international financial market integration. In a new open economy macroeconomic framework the paper shows that financial market integration causes a monetary policy trade-off between stabilising domestic goods prices as opposed to stabilising the terms of trade. Therefore, the welfare ranking of different exchanges rate rules changes during the process of international financial integration. It becomes evident that no single exchange rate regime outperforms in stabilising both domestic consumption and output variability in the process of financial market integration. --

Keywords: International Financial Market Integration; Exchange Rate Rules; Optimal Monetary Policy; Welfare (search for similar items in EconPapers)
JEL-codes: F41 F36 F21 (search for similar items in EconPapers)
Date: 2008
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Persistent link: http://EconPapers.repec.org/RePEc:zbw:bubdp1:7566

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