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The Political Choice and Collapse of Fixed Exchange Rates

Evidence suggests there is a strong tendency among states to choose fixed exchange rates. Yet the interpretation of fixed exchange rates as a monetary policy rule remains unconvincing. Adopting an endogenous policy perspective, this paper argues that political-support-maximizing governments... Full description

1st Person: Hefeker, Carsten
Source: in Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft Vol. 152, No. 2 (1996), p. 360-379
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Type of Publication: Article
Language: English
Published: 1996
Keywords: research-article
Online: Volltext
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Summary: Evidence suggests there is a strong tendency among states to choose fixed exchange rates. Yet the interpretation of fixed exchange rates as a monetary policy rule remains unconvincing. Adopting an endogenous policy perspective, this paper argues that political-support-maximizing governments choose fixed exchange rates to benefit domestic interest groups. Exogenous shocks, however, may change domestic political equilibria, causing the collapse of international arrangements and the switch to flexible exchange rates. Institutional peculiarities make monetary unification a special case in this cycle.
Item Description: Copyright: © 1996 J. C. B. Mohr (Paul Siebeck)
Physical Description: Online-Ressource
ISSN: 0932-4569

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