Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Determination: A Model of the Decisive Role of Central Bank Cooperation and Conflict
Author-Name: Robin Pope
Author-Name: Reinhard Selten
Author-Name: Sebastian Kube
Author-Name: Johannes Kaiser
Author-Name: Jürgen von Hagen
Author-Email: robin.pope@uni-bonn.de
Classification-JEL: D80, F31
Keywords: outliers analysis, clean float, dirty float, IMF, exchange rate regime, exchange rate volatility, experiment, SKAT the Stages of Knowledge Ahead Theory, monetary policy, transparent policy, exchange rate shocks, central bank cooperation, central bank conflict; beggar thy neighbor.
Abstract: The paper traces the dangers in the closed economy perspective of a  
	monetary policy focused on a domestic inflation goal under a clean  
	float.  Field evidence of the damage wrought from this perspective is  
	reinforced by that from a laboratory experiment.  The laboratory  
	experiment avoids measurement errors to which econometric estimation  
	is subject concerning omitted or inadequately proxied determinants,  
	non-normally distributed errors, inadequate degrees of freedom, false  
	assumptions of temporal independence and false synchronicity in  
	decision response lags to stimuli. Our laboratory experiment also  
	embeds a new theory of exchange rate determination involving the  
	uncontroversial power of fully cooperating central banks to totally  
	fix the exchange rate. The new model is within a broader theory that  
	includes risk effects normally excluded, SKAT, the Stages of  
	Knowledge Ahead Theory. We use SKAT to analyse outliers in our  
	experimental results, and indicate some new directions and foci for  
	econometric work.  Our laboratory results point to the superiority of  
	dollarisation, currency unions, a single world money over even dirty  
	floats that include the exchange rate as an objective in its own right.
Note: 
Length: 52
Creation-Date: 2007-11
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse19_2007.pdf
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse19_2007