TY - JOUR
T1 - Optimal and time consistent exchange-rate management in an overlapping-generations economy
AU - Eaton, Jonathan
PY - 1985/3
Y1 - 1985/3
N2 - This paper analyzes exchange-rate management in a simple overlapping generations model. This framework is used to evaluate alternative policies in terms of their implications for the welfare of individuals in the economy and for generating seigniorage. When the chief concern is to provide a desirable store of value, a policy of fixing the exchange rate does better when shocks are primarily of domestic origin while floating becomes more desirable when foreign shocks predominate. The same is true when the government is concerned with maximizing total expected seigniorage, although more intervention is typically desirable when generating seigniorage is the major objective. When seigniorage concerns are paramount and when the monetary authority cannot establish a reputation for conducting monetary policy in a way that makes the currency a desirable store of value, a national currency may not be viable in the absence of exchange controls. Such controls may be justified in this situation.
AB - This paper analyzes exchange-rate management in a simple overlapping generations model. This framework is used to evaluate alternative policies in terms of their implications for the welfare of individuals in the economy and for generating seigniorage. When the chief concern is to provide a desirable store of value, a policy of fixing the exchange rate does better when shocks are primarily of domestic origin while floating becomes more desirable when foreign shocks predominate. The same is true when the government is concerned with maximizing total expected seigniorage, although more intervention is typically desirable when generating seigniorage is the major objective. When seigniorage concerns are paramount and when the monetary authority cannot establish a reputation for conducting monetary policy in a way that makes the currency a desirable store of value, a national currency may not be viable in the absence of exchange controls. Such controls may be justified in this situation.
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U2 - 10.1016/0261-5606(85)90007-5
DO - 10.1016/0261-5606(85)90007-5
M3 - Article
AN - SCOPUS:0011593845
SN - 0261-5606
VL - 4
SP - 83
EP - 100
JO - Journal of International Money and Finance
JF - Journal of International Money and Finance
IS - 1
ER -