Fixed Versus Flexible Exchange Rates

Abstract

The problem of the best exchange-rate regime (fixed or flexible exchange rates) was the subject of a heated debate in the fifties and sixties, which — among other things — also produced a series of proposals for intermediate or limited-flexibility regimes. It was a debate based mainly on theoretical arguments, because — as the prevailing regime at that time was the Bretton Woods adjustable peg (see Sect. 10.5) — the effects of a generalized system of flexible exchange rates could not be observed. Nor was the empirical evidence drawn from other historical periods of much help, given the profound economic changes occurring in those years.