In Defence of Flexible Exchange Rates in a Small Open Capitalist Economy

Eric Kam ()
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Eric Kam: Toronto Metropolitan University

Chapter Chapter 11 in Debates in Monetary Macroeconomics, 2022, pp 217-235 from Springer

Abstract: Abstract This chapter presents an argument for flexible exchange rates. The various ‘hard pegs’ for nominal exchange rates that have been tried have all failed, resulting in macroeconomic instability. In the real world, the only exchange rate regimes that have employed floating exchange rates or (at a minimum) fixed-but-adjustable exchange rates have been successful. Nonetheless, many theorists favour hard pegs or currency unions because they perform well in strongly abstract theoretical models. They are popular because they provide convenient mathematical simplifications in order to create closed-form solutions - in defiance of many of the realities on the ground.

Keywords: Closed-form solutions; Fixed-but-adjustable exchange rate; Hard peg; Flexible exchange rate; Nominal exchange rate; Real exchange rate; World interest rate (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-11240-9_11

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DOI: 10.1007/978-3-031-11240-9_11

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