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Title:Beggar Thy Neighbour: Exchange Rate Regime Misadvice from Misunderstandings of Mundell (1961) PDF Logo
Authors:Pope, Robin
Issue Date:2007
Series/Report no.:Bonn econ discussion papers 2007,1
Abstract:Mundell's optimal currency area model has been misconstrued, being at base an argument against multiple currencies as Mundell himself stated in that paper and frequently since. This paper shows two things. First use of this model has generated beggar-thy-neighbour advice concerning exchange rate changes. Second, because of its certainty assumptions, the model's findings that an exchange rate change could restore equilibrium after certain types of shocks is only plausible if 1) there to have been no prior exchange rate change in living memory, and 2) if there is something precluding any currency area subsequently generating another exchange rate change.
Subjects:optimal currency area
exchange rate regime
uncertainty effects
beggar-thyneighbour policies
Document Type:Working Paper
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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