Abstract

Fixed exchange rates are less volatile than floating rates. But the volatility of macroeconomic variables such as money and output does not change very much across exchange rate regimes. This suggests that exchange rate models based only on macroeconomic fundamentals are unlikely to be very successful. It also suggests that there is no clear tradeoff between reduced exchange rate volatility and macroeconomic stability. Keywords: structural, traditional, volatility, monetary, fixed, floating, regime. JEL Classification Numbers: F31, F33. ____________________________________________________________________________ * Corresponding Author * Flood is: Senior Economist, Research Department, IMF; and Research Associate, NBER. Rose is: Associate Professor and Chair of Economic Analysis and Policy, Haas School of Business, University of California, Berkeley; Research Associate, NBER; and Research Fellow, CEPR. Part of this work was completed while Rose was visiting the IMF Research Department a...

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