Fixed vs. floating exchange rates: a dynamic general equilibrium analysis

Daniel M. Chin and Preston J. Miller

No 194, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: In this study we contrast fixed and floating exchange rate regimes in a dynamic general equilibrium model. We find that the fundamental difference in the regimes is in the courses they imply for monetary policies. Because of policy coordination requirements, a tighter monetary policy needed to maintain a fixed exchange rate may necessitate a tightening in budget policy as well. We show that under some initial conditions voters or a social planner will favor one regime, but under other conditions they will favor the other. However, the choices of voters and a social planner are almost diametrically opposed.

Keywords: Foreign; exchange; rates (search for similar items in EconPapers)
Date: 1995
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Citations: View citations in EconPapers (2)

Published in European Economic Review (Vol 42, 1998, pp. 1221-1249)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:194

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