Are Fixed Exchange Rates the Problem and Flexible Exchange Rates the Cure?

Paul Davidson

Eastern Economic Journal, 2003, vol. 29, issue 2, 259-268

Abstract: This paper explains why once non-probabilistic (i.e., a non-ergodic stochastic system) uncertainty is introduced into an orthodox freely flexible exchange rate model, the concept of the elasticity of expectations explains the open economy system will be extremely unstable except under the most stationary of economic circumstances. Alternative fixed exchange rate systems are proposed which will help stabilize the open economy--even when real economic forces are volatile.

Keywords: Exchange Rates; Fixed Exchange Rate (search for similar items in EconPapers)
JEL-codes: F31 F33 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eej:eeconj:v:29:y:2003:i:2:p:259-268

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