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dc.contributor.authorPope, Robinen_US
dc.contributor.authorSelten, Reinharden_US
dc.contributor.authorKube, Sebastianen_US
dc.contributor.authorKaiser, Johannesen_US
dc.contributor.authorvon Hagen, Jürgenen_US
dc.description.abstractOpinion is divided on whether it is better to have a single world money or variable exchange rates.Pope, Selten and von Hagen (2003) propose that fresh light would be shed via an analysis that allows forseven complexity impacts on the exchange rate that are underplayed (where not entirely absent) fromcurrent analyses: 1) the role of official sector, including its central bank; 2) the numerous official andprivate sector goals; 3) the disparate degrees of market power of different sorts of private agents; 4) thedocumentation that essentially all shocks to the exchange rate are generated by human decisions; 5) thenon-maximising heuristics that in the complex economy agents use; 6) heterogenous beliefs. This paperanalyses a closed form game theoretic solution of version 1 of a model that combines impacts 1 to 4 withthe conventional finance assumption that all agents maximise their utility. Impact 1) precludes privateagents being able to destabilise the exchange rate against the cooperation of the central banks requiredby the game theoretic solution. Impact 4) excludes random events and other exogenous shocks such asmeteors falling from the sky. The rational maximising assumption in turn precludes all other sources ofshocks and thus any need for a variable exchange rate to equilibrate after shocks. We then modifyversion 1 of our model substituting for the maximising assumption impacts 5 to 7, impacts that allowshocks from humans to be consistently incorporated. We do so by means of an experimentalinvestigation which indicates that central bankers less than fully cooperate, leaving scope for privatespeculators to support their preferred currency. From the viewpoint of the game theoretic equilibrium,the resultant exchange rate changes render equilibrium unspecified. A single world money avoidsdisruptive exchange rate changes from less than fully cooperating central banks, exchange rate changescaused by central bank conflicts and that cannot be classified as equilibrating.en_US
dc.publisherGraduate School of Economics Bonnen_US
dc.relation.ispartofseriesBonn econ discussion papers 2007,18en_US
dc.subject.keywordcentral banken_US
dc.subject.keywordexchange rateen_US
dc.subject.keywordmarket poweren_US
dc.subject.keywordheterogenous beliefsen_US
dc.subject.keywordinterpersonal dynamicsen_US
dc.subject.keyworddestabilising speculatorsen_US
dc.subject.keywordirrational central bankersen_US
dc.titleA model of the decisive role of central bank cooperation and conflicten_US
dc.typeWorking Paperen_US
Appears in Collections:Bonn Econ Discussion Papers, Bonn Graduate School of Economics (BGSE), Universität Bonn

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