Dynamic Exchange Rate Equilibria with Uncertain Government Policy

Nickelsburg, Gerald

doi:10.2307/2297437

Cited by 15 publications

(4 citation statements)

References 7 publications

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“…We distinguish our discussion between two specifications of agents' expectations regarding future capital controls. As a benchmark, following previous studies (Lapan and Enders, 1983;Nickelsburg, 1984), we first examine the case in which agents' beliefs are exogenous and fixed. We then allow agents' expectations regarding future capital controls to depend upon the extent of economy-wide CS.…”

Section: Introductionmentioning

confidence: 99%

Inflationary Finance, Capital Controls, and Currency Substitution

Tandon

Yong

1999

Rev International Economics

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This paper studies currency substitution in an environment where agents' inflation tax-evasive demand for foreign money is balanced by the concern for the possibility that the government may impose economywide capital controls under which foreign currency transactions are costly. Under the assumption of endogenous beliefs, the results show a persistent demand for foreign money despite efforts by the government to reduce inflation. In addition, the economy can exhibit multiple, Pareto-ranked steady states with different levels of currency substitution. The stability analysis suggests that the economy converges to the inferior steady state, on the "wrong side" of the Laffer curve.

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Section: Introductionmentioning

confidence: 99%

Inflationary Finance, Capital Controls, and Currency Substitution

Tandon

Yong

1999

Rev International Economics

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“…Unlike in this model and models byNickelsburg (1984) andSibert (1989) we do not assume unexplained behavior by any agent in the economy.…”

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confidence: 99%

Floating exchange rates versus a monetary union under rational beliefs: the role of endogenous uncertainty

Nielsen¹

2003

Economic Theory

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“…(For empirical evidence, see the analyses and evidence in Darby et al, 1983, andin Laney andWillett, 1982.) From a policy perspective, what is truly novel about the currency substitution literature is not that monetary interdependence continues under flexible exchange rates, but rather that 5exible rates become unstable as the elasticity of substitution among currencies approaches infinity (see, for example, Girton and Roper, 1981;Karaken and Wallace, 1981;Nickelsburg, 1984). This is not a result obtained as capital mobility rises to infinity.…”

Section: It Currency Substitution Hypothesismentioning

confidence: 99%

Currency Substitution, U.S. Money Demand, and International Interdependence

Willett¹,

Bordo²,

Choudhri³

et al. 1987

Contemporary Economic Policy

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A number of writers have argued in recent years that massive international currency substitution has been a major cause of exchange rate volatility and monetary instability in the United States and other major countries. Such analysis is frequently coupled with recommendations for a return to pegged exchange rates. This paper critically examines the evidence presented for this currency substitution view. It argues that the weight of latest research suggests that direct international currency substitution has not been of major quantitative importance for the U.S. However, empirical evidence supports traditional views that international capital mobility can generate substantial short‐run monetary interdependence even under flexible exchange rates. Thus, even though international currency substitution is of little importance to U.S. monetary conditions, a broader range of international considerations may be of considerable importance for the U.S. economy.

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Dynamic Exchange Rate Equilibria with Uncertain Government Policy

Cited by 15 publications

References 7 publications

Inflationary Finance, Capital Controls, and Currency Substitution

Inflationary Finance, Capital Controls, and Currency Substitution

Floating exchange rates versus a monetary union under rational beliefs: the role of endogenous uncertainty

Currency Substitution, U.S. Money Demand, and International Interdependence

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