Creator: Kareken, John H. and Wallace, Neil. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 153 Abstract:
In this paper we consider a particular international economic policy regime: the laissez-faire regime, the distinguishing features of which are unrestricted portfolio choice and floating exchange rates. And as we show, that regime, although favored by many economists, is not economically feasible. It does not have a determinate equilibrium. That is an implication of an over-lapping-generations model. But as we argue in the paper, that is no reason for doubting the indeterminacy of the laissez-faire regime equilibrium.
Keyword: Overlapping generations, Laissez-faire regime, International economic policy, and Foreign exchange rate Subject (JEL): F31 - International finance - Foreign exchange and D53 - General equilibrium and disequilibrium - Financial markets