This paper reports evidence on the characteristics of fixed and flexible exchange rate regimes. It contrasts experience under three interwar exchange rate regimes: the free float of the early 1920s, the fixed rates of 1927-31, and the managed float of the early 1930s. A number of important...

In this paper we demonstrate that exchange rate regime switching is compatible with optimal government policies. Nominal exchange-rate regimes are formalized as equilibrium commitments on future seigniorage policies, and the collapse of an exchange-rate peg as an excusable default which allows...

Techniques of regulated Brownian motion are used to analyze the behavior of the exchange rate when official policy reaction functions are subject to future stochastic changes. We examine exchange-rate dynamics in alternative cases where the authorities promise (i) to confine a floating rate...

Using the sticky price monetary model of exchange rate determination and the sunk cost model of trade hysteresis, we show that a sufficiently large policy misalignment can induce hysteresis in the trade balance and thereby alter the steady?state real exchange rate. Thus in our model exchange...

The traditional approach to the estimation of the offset and sterilization equations can be criticized for the ad-hoc specification of the reaction function of the monetary authorities and the endogeneity of the domestic credit and foreign reserve variables in the estimated equations. The paper...

Patterns in domestic credit creation stemming from inconsistent fiscal policies have received widespread attention for aggravating speculative attacks on central bank foreign exchange reserves and contributing to the collapse of exchange rate regimes. This paper acknowledges the importance of...

The paper develops an analytical framework which demonstrates that the various forms of exchange-rate management are equivalent to corresponding tax policies. To highlight the salient issues, we consider two specific categories of exchange-rate policies. The first is a dual exchange-rate regime,...

This paper examines the endogenous implementation of capital controls in the context of a fixed exchange rate regime. It is shown that if there exists a non-zero probability that the policymaker's response to a speculative attack on official foreign reserves will be the introduction of controls,...

We review ten aspects of how floating exchange rates have worked in practice, contrasted with ten characteristics that the system was supposed to have in theory. We conclude that the foreign exchange market is characterized by high transactions-volume, short-term horizons, and an absence of...

This paper investigates the dependency of the adjustment of prices, exchange rates, and production on the nature of the trade regime. We contrast the adjustment between a quota and a tariff regime for a 'semi-small' economy characterized by monopolistic competitive market structure and short-run...