TY - JOUR AU - Flassbeck, Heiner PY - 2018/01/01 Y2 - 2024/03/28 TI - Exchange rate determination and the flaws of mainstream monetary theory JF - Brazilian Journal of Political Economy JA - BJPE VL - 38 IS - 1 SE - DO - 10.1590/0101-31572018v38n01a06 UR - https://centrodeeconomiapolitica.org.br/repojs/index.php/journal/article/view/56 SP - 99-114 AB - <p>Developing countries in general need flexibility and a sufficient number of instruments to prevent excessive volatility. Evidence does not support the orthodox belief that, with free floating, international financial markets will perform that role by smoothly adjusting exchange rates to their “equilibrium” level. In reality, exchange rates under a floating regime have proved to be highly unstable, leading to long spells of misalignment. The experience with hard pegs has not been satisfactory either: the exchange rate could not be corrected in cases of external shocks or misalignment. Given this experience, “intermediate” regimes are preferable when there is instability in international financial markets.</p><p><strong>JEL Classification:</strong> E4; F.</p> ER -