Persistent, nonfundamental exchange rate fluctuations

A trading-post model of money is used to show how exchange rates can be affected by extrinsic uncertainty. With no uncertainty in fundamentals، نويسنده , , we demonstrate that there exist equilibria where exchange rates as well as consumption allocations follow a stationary random process. The fluctuations are permanent، نويسنده , , and they affect economic welfare. These findings also apply when the currency supplies grow at different rates. Then، نويسنده , , the only stationary equilibria in which both monies are valued are those with fluctuations: the real value of the currencies follow a stationary process، نويسنده , , and the average return on the fast-growing currency is lower than that of the slow-growing currency.، نويسنده ,

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