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Does Competition Between Currencies Lead to Price Level and Exchange Rate Stability?

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  • Michael Woodford
Abstract
Over the past century, the world economy has passed through a succession of phases characterized by very different levels of international capital flows. This paper asks what accounts for these dramatic shifts in the extent of capital movements across national borders, three categories of explanation are considered. The first emphasizes the policy regime - attributing the unusual extent of capital flows prior to 1914 to the operation of the international gold standard, The second focuses on the stages-of-indebtedness sometimes thought to characterize the process of economic development. The third ascribes changes in the extent of capital flows to the boom-and-bust cycles through which international capital markets are thought to pass. Though each approach contributes something to our understanding of the phenomenon, none is totally satisfactory. I therefore suggest an alternative explanation, which lays stress on the increase in the magnitude of real interest rate and reel exchange race variability that has occurred over the last 100 years.

Suggested Citation

  • Michael Woodford, 1990. "Does Competition Between Currencies Lead to Price Level and Exchange Rate Stability?," NBER Working Papers 3441, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3441
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    References listed on IDEAS

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    Cited by:

    1. Alberto Giovannini, 1991. "Currency Substitution and the Fluctuations of Foreign-Exchange Reserves with Credibly Fixed Exchange Rates," NBER Working Papers 3636, National Bureau of Economic Research, Inc.
    2. Lorenzo Bini-Smaghi & Silvia Vori, 1993. "Is there a “triffin dilemma” for the EMS?," Open Economies Review, Springer, vol. 4(2), pages 175-188, June.
    3. Nyahoho, Emmanuel, 1995. "La concurrence de monnaies dans un marché financier dématérialisé," L'Actualité Economique, Société Canadienne de Science Economique, vol. 71(3), pages 334-364, septembre.
    4. Flavio Padrini, 1997. "Efficiency Of The Payments System, Velocity Of Circulation Of Money, And Financial Markets," Macroeconomics 9706004, University Library of Munich, Germany.
    5. Jordi Caballé & Jana Hromcová, 2011. "The Role of Central Bank Operating Procedures in an Economy with Productive Government Spending," Computational Economics, Springer;Society for Computational Economics, vol. 37(1), pages 39-65, January.

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