Flexible Exchange Rates for a Stable World Economy

Flexible Exchange Rates for a Stable World Economy

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Volatile exchange rates and how to manage them are a contentious topic whenever economic policymakers gather in international meetings. This book examines the broad parameters of exchange rate policy in light of both high-powered theory and real-world experience. What are the costs and benefits of flexible versus fixed exchange rates? How much of a role should the exchange rate play in monetary policy? Why don't volatile exchange rates destabilize inflation and output? The principal finding of this book is that using monetary policy to fight exchange rate volatility, including through the adoption of a fixed exchange rate regime, leads to greater volatility of employment, output, and inflation. In other words, the qcureq for exchange rate volatility is worse than the disease. This finding is demonstrated in economic models, in historical case studies, and in statistical analysis of the data. The book devotes considerable attention to understanding the reasons why volatile exchange rates do not destabilize inflation and output. The book concludes that many countries would benefit from allowing greater flexibility of their exchange rates in order to target monetary policy at stabilization of their domestic economies. Few, if any, countries would benefit from a move in the opposite direction.US prices are for Civic DX from 2001 through 2005 and Civic EX from 2006 through 2010. ... However, a bit more than half ofthe deviation between German and UK prices from 2007 to 2009 was reversed going into 2010. ... are for the Legacy station wagon, with a 2.0-liter engine in Germany and the United Kingdom and a 2.5-liter engine in the United States. ... For the Honda Civic, the German and US prices were regressed on the exchange-rate-adjusted UK price ( with a dummyanbsp;...

Title:Flexible Exchange Rates for a Stable World Economy
Author:Joseph E. Gagnon
Publisher:Peterson Institute - 2011


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