FIXING EXCHANGE-RATES - A VIRTUAL QUEST FOR FUNDAMENTALS

Fixed exchange rates are less volatile than floating rates. But the vo latility of macroeconomic variables such as money and output does not change very much across exchange rate regimes. This suggest that excha nge rate models based only on macroeconomic fundamentals are unlikely to be very successful. It also suggests that there is no clear tradeof f between reduced exchange rate volatility and macroeconomic stability .