Stability and Exchange Rate Systems in a Monetarist Model of the Balance of Payments

  • Stanley Fischer


The fixed versus floating exchange rates debate appears destined for as long a life as any of the standing controversies in economics. The standard arguments are outlined by Johnson (1969) and Kindleberger (1969). This paper focuses on the effects of the exchange rate system on economic stability. We construct a simple model in which real disturbances affect the level of output each period and nominal disturbances affect the demand for money, and examine the resultant variability of the rate of consumption and the price level in a single country and in a two-country world under regimes of fixed and of floating exchange rates.


Exchange Rate Monetary Policy Price Level Exchange Rate Regime Monetary Authority 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Argy, Victor and Kouri, Pentti J. K. K., ‘Sterilisation Policies and the Volatility in International Reserves’, Robert Z. Aliber (ed.) National Monetary Policies and the International Monetary System (University of Chicago Press, 1974 ).Google Scholar
  2. Baumol, William J., ‘Pitfalls in Contracyclical Policies; Some Tools and Results’, Review of Economics and Statistics (Feb 1961) 21–6.Google Scholar
  3. Dornbusch, Rudiger, ‘Devaluation, Money, and Nontraded Goods’, American Economic Review (Dec 1973) 871–80.Google Scholar
  4. Hanoch, Giora, ‘Desirability of Price Stabilisation or Destabilisation’, Harvard Institute of Economic Research, Discussion Paper Number 351 (Mar 1974).Google Scholar
  5. Johnson, Harry G., ‘The Case for Flexible Exchange Rates, 1969’, Federal Reserve Bank of St. Louis Review (June 1969) 12–24.Google Scholar
  6. Kindleberger, Charles P., ‘The Case for Fixed Exchange Rates, 1969’, in the Federal Reserve Bank of Boston Conference Series No. 2, The International Adjustment Mechanism (Oct 1969) 93–108.Google Scholar
  7. Laffer, Arthur B., ‘Two Arguments for Fixed Rates’, in H. G. Johnson and A. K. Swoboda (eds) The Economics of Common Currencies ( London: Allen & Unwin, 1973 ) 25–34.Google Scholar
  8. Lucas, Robert E., Jr, ‘Some International Evidence on Output — Inflation Tradeoffs’, American Economic Review (June 1973) 326–34.Google Scholar
  9. McKinnon,Ronald I., ‘Sterilisation in Three Dimensions: Major Trading Countries, Euro-currencies, and the United States’, forth-coming in Robert Z. Aliber, (ed.) National Monetary Policies andthe International Monetary System (University of Chicago Press, 1974 ).Google Scholar
  10. Mood, Alexander M., Graybill, Franklin A., and Boes, Duane C., Introduction to the Theory of Statistics, third edition ( New York: Macmillan, 1974 ).Google Scholar
  11. Mundell, Robert A., ‘The Monetary Dynamics of International Adjustment under Fixed and Flexible Exchange Rates’, Quarterly Journal of Economics (May 1960) 227–57.Google Scholar
  12. Stein, Jerome L., ‘The Optimum Foreign Exchange Market’, American Economic Review (June 1963) 384–402.Google Scholar
  13. Tower, Edward and Courtney, Mark M., ‘Exchange Rate Flexibility and Macro-Economic Stability’, Review of Economics and Statistics (May 1974) 215–24.Google Scholar

Copyright information

© Graduate School of Business, University of Chicago 1977

Authors and Affiliations

  • Stanley Fischer

There are no affiliations available

Personalised recommendations