Flexible Exchange Rates and Insulation: A Reexamination

  • Joachim Fels
Conference paper
Part of the A Publication of the Egon-Sohmen-Foundation book series (EGON-SOHMEN)

Abstract

Will a country embedded in an integrated world economy be able to completely insulate its economy from foreign economic disturbances by letting its currency float freely in the foreign exchange market? Both theoretical considerations and actual experience after the movement to flexible exchange rates among the major currencies in 1973 suggest that the answer is negative. According to conventional wisdom, however, the early advocates of flexible exchange rates believed in the ability of floating rates to perfectly insulate an economy from disturbances originating abroad. This conventional wisdom is frequently cited to show that the case for flexible exchange rates may not be as strong as it originally seemed to be, since part of the case appears to have rested on an erroneous belief.

Keywords

Depression Transportation Income Nism OECD 

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Copyright information

© Springer-Verlag Berlin · Heidelberg 1992

Authors and Affiliations

  • Joachim Fels

There are no affiliations available

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