Working Paper
An analysis of the welfare implications of alternative exchange rate regimes: an intertemporal model with an application
Feltenstein, Andrew; Sibert, Anne C.; Lebow, David E. (1986)
We construct a two-period model of an open economy and use the model to analyze the welfare implications of fixed and floating exchange regimes. Consumers have perfect foresight and save by holding domestic and foreign bonds, which are chosen according to relative interest rates, deflated by the rate of devaluation of the domestic currency. The government produces a pure public good and finances its deficits by issuing money, domestic bonds, and by foreign borrowing. The government's bonds compete with private investment, which is entirely debt financed. Foreign exchange, i.e., foreign bonds, ...
International Finance Discussion Papers , Paper 273