DP838 Fixing Exchange Rates: A Virtual Quest for Fundamentals

Author(s): Robert P Flood, Andrew K Rose
Publication Date: September 1993
Keyword(s): Exchange Rates, Fixed, Floating, Monetary, Regime, Structural, Traditional, Volatility
JEL(s): F31, F33
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=838

Fixed exchange rates are less volatile than floating rates. The volatility of macroeconomic variables, such as money and output, does not change very much across exchange rate regimes, however. This suggests that exchange rate models based only on macroeconomic fundamentals are unlikely to be very successful. It also suggests that there is no clear trade-off between reduced exchange rate volatility and macroeconomic stability.