Document Type

Report

Publication Date

1979

Number

108

Abstract

Past research has argued that, in the presence of disturbances, the choice of an exchange regime depend,s upon: i) the source of disturbances and ii) the openness of the economy. In this paper we demonstrate that, when all goods are tradeable, the source of disturbances is unimportant, whereas attitudes towards risk are of fundamental importance in choosing regimes. Further, we show that, when nontraded goods are present, the degree of commodity sustainability is crucial. Somewhat surprisingly, we also demonstrate that the more closed an economy is, the more likely it is that fixed rates are preferable.