Greed, impatience and exchange rate determination

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Title: Greed, impatience and exchange rate determination
Authors: Bohn, Frank
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Date: May-2006
Online since: 2009-08-07T16:03:53Z
Abstract: This paper offers a theoretical explanation for the determination of exchange rates under specific conditions which can/could be found in some OECD and newly industrialised countries. In an Obstfeld (1994) framework extended to incorporate government expropriation reneging on a fixed exchange rate promise unambiguously produces short term benefits, but long term losses. The choice of exchange rate regime depends on the combined effect of greediness (expropriation) and impatience (political instability), though not straightforwardly. In particular, similarly stable countries may choose different exchange rate regimes due to different levels of rent-seeking, for instance Mexico and Chile in the 1980s.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Series/Report no.: UCD Centre for Economic Research Working Paper Series; WP06/05
Keywords: Exchange rate regimeMonetary policyFiscal policyExpropriationPolitical instabilityPolitical economy
Subject LCSH: Foreign exchange rates
Monetary policy
Fiscal policy
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Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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