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Exchange Rate Misalignments and Adjustments: Implications for Floating and Fixed Parity Systems
Author(s) -
Parker Simon C.
Publication year - 1998
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.00088
Subject(s) - parity (physics) , fixed exchange rates , interest rate parity , economics , floating exchange rate , currency , fixed interest rate loan , econometrics , exchange rate , monetary economics , physics , particle physics , interest rate
We present a microeconomic efficiency cost framework for discriminating between fixed and floating exchange rate systems, and illustrate it with UK data over 1975–90. It is found that a fixed parity system would have been unambiguously preferred to a floating system over this period, unless the parity were set sufficiently non‐centrally or costs from persistent currency overvaluation were sufficiently high. Under no circumstances could a floating parity have been unambiguously preferred to a fixed parity system.