Noise Trading and Exchange Rate Regimes

Olivier Jeanne and Andrew Rose

No 7104, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Both the literature and new empirical evidence show that exchange rate regimes differ primarily by the noisiness of the exchange rate, not be measurable macroeconomic fundamentals. This motivates a theoretical analysis of exchange rate regimes with noise traders. The presence of noise traders can lead to multiple equilibria in the foreign exchange market. The entry of noise traders both create and share the risk associated with exchange rate volatility. In such circumstances, monetary policy can be used to lower exchange rate volatility without altering macroeconomic fundamentals.

JEL-codes: F33 G15 (search for similar items in EconPapers)
Date: 1999-04
New Economics Papers: this item is included in nep-ifn
Note: IFM
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Citations: View citations in EconPapers (31)

Published as Olivier Jeanne & Andrew K. Rose, 2002. "Noise Trading And Exchange Rate Regimes," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 537-569, May.

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Related works:
Journal Article: Noise Trading and Exchange Rate Regimes (2002)
Working Paper: Noise Trading and Exchange Rate Regimes (1999)
Working Paper: Noise trading and exchange rate regimes (1999)
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