Quasi-fundamental exchange rate variation

Steven Russell

Economic Theory, 2003, vol. 22, issue 1, 140 pages

Abstract: This paper uses a general equilibrium model to study the determination of the exchange rate in an economy with fundamental uncertainty. The model has steady state equilibria in which the exchange rate is constant. These equilibria may coexist with “quasi-fundamental” equilibria – nonstationary equilibria in which the exchange rate displays stochastic fluctuations that are correlated with the fluctuations in fundamental random variables. The quasi-fundamental equilibria are Pareto dominated by the corresponding constant-exchange-rate steady states. They also converge to these steady states, inevitably or with positive probability. Copyright Springer-Verlag Berlin Heidelberg 2003

Keywords: Keywords and Phrases: Exchange rates; Excessive volatility; Sunspot equilibria.; JEL Classification Numbers: E32; F31. (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:spr:joecth:v:22:y:2003:i:1:p:111-140

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DOI: 10.1007/s00199-002-0289-4

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