Flexible exchange rates and interdependence

Author / Creator

Dornbusch, Rudiger

Available as

Online

Summary

"The paper was prepared for the NBER-IMF conference on Exchange Rate Policy and Interdependence. It reviews the experience with flexible exchange rates and the main policy alternatives that have be...

"The paper was prepared for the NBER-IMF conference on Exchange Rate Policy and Interdependence. It reviews the experience with flexible exchange rates and the main policy alternatives that have been suggested. The theoretical part develops a modern open economy macro model with an emphasis on capital mobility, real and nominal wage stickiness and expectations. The impact of disturbances is discussed in terms of the underlying structure, in particular, the relative role of real and nominal inflexibility. Among the main policy alternatives the paper reviews the McKinnon proposal for world monetarism, and the band proposal. Both of these schemes are found unsatisfactory in coping with the chief problem of the current systems namely how to cope with the transition to low inflation. The alternative of capital controls, likewise, would not avoid the adverse consequences of monetary stabilization it would only influence the particular details of the international transmission"--NBER website

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