The Alternative Arrangements of Exchange Rate Regimes

The desirable exchange rate regime for a country might depend on the regimes of the other countries. Taking this point into consideration, this paper shows the conditions for relative superiority of the alternative exchange rate arrangements using a quasi three countries model of Mundell-Fleming type. These conditons include the new one for optimum currency areas. The compared alternatives consist of such arrangements as independent floats, solitary pegs, common pegs, and common floats. As the criterion of comparison, this paper adopts the analysis of Poole (1970) which has measured the variability of GNP in response to both real and monetary shocks.