Studies of alternative exchange rate systems : an intertemporal general equilibrium approach

Sammanfattning: The four studies in this monograph analyze and compare the working of alternative exchange rate systems. Dealing with related though different problems, they all rely on a similar theoretical framework that applies intertemporal general equilibrium analysis, temporary equilibrium theory and a specific microtheory of money. Chapter II deals with international effects of stabilization policy under fixed and floating exchange rates. It examines national expansionary employment policies directed towards the demand as well as the supply side. The effects of these policies on employment, terms of trade and welfare at home and abroad are shown to differ in the two systems. Terms of trade effects may counteract and even outweigh positive (negative) welfare effects of increasing (decreasing) employment. Intermediate exchange rate systems, which arise when there are blocs of countries with mutually fixed exchange rates in a world of floating rates, are the subject matter of Chapters III and IV. Two types of intermediate systems are compared to a system with general floating; first when all markets clear via price adjustment, and then in the presence of frictions in the form of short-run wage rigidities. The transmission of monetary and real disturbances in the intermediate systems is more asymmetric from a global point of view, in the sense that the same disturbance leads to a different adjustment depending in what country it originates. For a country on floating rates the effects of a certain shock abroad when it floats against a bloc may differ from the effects of the same shock when it floats against other floaters. Chapter V analyzes the properties of five different fixed exchange rate arrangements. Some of them are shown to involve an inherent redistribution of wealth between two countries that maintain a fixed exchange rate. The arrangements differ also in the constraints they impose on monetary policies, and in some of them the situation for the two countries differs because of different assignments of their monetary authorities. The importance of making a distinction between different types of fixed exchange rate regimes is illustrated by showing how real variables - national wealth, welfare and spending levels - are affected by a monetary expansion in each system.