Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/27651
Authors: 
Hoffmann, Mathias
Year of Publication: 
2008
Series/Report no.: 
Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2008,27
Abstract: 
In this paper Friedmann (1953) and Mundell´s (1968) position favouring flexible over alternative exchange rate regimes is reassessed in the context of international financial market integration. In a new open economy macroeconomic framework the paper shows that financial market integration causes a monetary policy trade-off between stabilising domestic goods prices as opposed to stabilising the terms of trade. Therefore, the welfare ranking of different exchanges rate rules changes during the process of international financial integration. It becomes evident that no single exchange rate regime outperforms in stabilising both domestic consumption and output variability in the process of financial market integration.
Subjects: 
International Financial Market Integration
Exchange Rate Rules
Optimal Monetary Policy
Welfare
JEL: 
F41
F36
F21
Document Type: 
Working Paper

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