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On exchange rates and efficiency

Economic Theory volume 7, pages 267–281 (1996)Cite this article

Summary

This paper analyzes an exchange economy in which several assets serve as stores of value and where agents have completely heterogeneous preferences and endowments. It describes the set of perfect foresight equilibria in which all assets have positive prices. There are international policies with determinate exchange rates if the world economy satisfies a strong efficiency criterion. Also, the corresponding equilibrium allocations are in the core of the world economy for certain international policies. Hence, a system of fixed exchange rates can support efficient allocations to the extent that countries agree on a division of seigniorage in the creation of international reserves.

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Authors and Affiliations

  1. Department of Economics, The Ohio State University, 43210, Columbus, OH, USA

    Eric O'N Fisher

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  1. Eric O'N Fisher
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I would like to thank an annonymous referee, Suchan Chae, Mike Woodford, Ken Kasa, Helen Popper, Kathryn Marshall, and seminar participants at the University of Kansas, the Federal Reserve board, the 1990 meetings of the Western Economic Association, the University of Western Ontario, the University of Chicago, the University of Pennsylvania, Purdue University, and Victoria University of Wellington for comments on earlier drafts.

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Fisher, E.O. On exchange rates and efficiency. Econ Theory 7, 267–281 (1996). https://doi.org/10.1007/BF01213905

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  • DOI: https://doi.org/10.1007/BF01213905

Keywords

  • Exchange Rate
  • Economic Theory
  • World Economy
  • Exchange Economy
  • International Policy