Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/37021
Authors: 
Pope, Robin
Selten, Reinhard
Kube, Sebastian
von Hagen, Jürgen
Year of Publication: 
2009
Series/Report no.: 
Bonn Econ Discussion Papers 26/2009
Abstract: 
This paper’s field evidence is: (1) many official sectors rapidly forget the damage of the 1982-85 exchange rate liquidity crisis and reverted to what caused that crisis, namely a closed economy clean floats perspective; and (2) the 2006-2008/9 exchange rate liquidity shock would have been more drastic but for central bank currency swaps. This evidence is bolstered by a laboratory experiment that incorporates more aspects of real world complexity and more different sorts of official and private sector agents than are feasible in econometric or algebraic investigations and employs a new central bank cooperation-conflict model of exchange rate determination , and is within an umbrella theory of Pope, namely SKAT, the Stages of Knowledge Ahead Theory. SKAT allows for risk effects from stages omitted in normal models, including those from (a) difficulties of agents in evaluating alternatives in a complex environment in which the assumed maximization of expected utility is impossible; and (b) preference for safety and reliability is not trivialized. Our joint field plus laboratory evidence indicates that official sectors should maintain an international exchange rate oriented perspective, or better yet, a single world currency as recommended by Zhou Xiaochuan, head of the People’s Bank of China. To avoid rapid forgetting of havoc from isolationist clean floats and the value of stable exchange rates, a new syllabus, as under the SKAT umbrella, is fundamental in the education of official sector members in order to furnish them with a coherent alternative intellectual framework to current university education that excludes liquidity crises.
Subjects: 
clean float
managed float
IMF imposed conditions
exchange rate regime
exchange rate volatility
experiment
SKAT the Stages of Knowledge Ahead Theory
monetary policy
transparent policy
exchange rate shocks
central bank cooperation
central bank conflict
JEL: 
D80
F31
Document Type: 
Working Paper
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