Beggar Thy Neighbour Exchange Rate Regime Misadvice Â from Misapplications of Mundell (1961) and the Remedy
Economists invoke Mundell (1961) in arguing for the general policy of Â a flexible exchange rate regime as a means of restoring equilibria Â after shocks. But there is a discrepancy between the intent of the Â general policy and attempts at its implementation as identified by Â specific changes in exchange rates. Â When we assemble the set of Â specific changes called for by distinct economists operating as Â advocates for individual countries, these are uniformly in the form Â of beggar-thy-neighbour advice â€“ ie travesties of objectively Â identifying disequilibria and a menace to international cooperation Â and peace. Â This paper traces the unintended travesties to problems Â of complexity and uncertainty, problems that implicitly are assumed Â absent in Mundell (1961) rendering the situation so simple that Â equilibria are transparent. Â The problems remained essentially Â unaddressed when economists extended Mundell (1961) via expected Â utility theory since this theory also ignores the impossibility of Â maximising and the complexities of central bankers, private firms and Â others in doing the evaluation stage in reaching decisions. Â The Â problems can be overcome by modelling within SKAT, the Stages of Â Knowledge Ahead Theory. Â This paper points to experimental evidence Â in support of the view that under all sorts of disequilibrating Â shocks, currency unions outperform flexible currencies by eliminating Â the inefficiencies generated by exchange rate uncertainty.
optimal currency area; exchange rate regime; certainty effects; Â policy; beggar-thy-neighbour; SKAT the Stages of Knowledge Ahead Theory; complexity; equilibrium; small world; shocks; expenditure-switching shocks; supply-side shocks; demand shocks; experiment, safety, international competitiveness.
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.