In this paper we show, in an example, that the arbitrary behavior which results in an indeterminacy in the time path of a flexible exchange rate and is associated with "badly behaved" speculation has a manifestation under a regime of fixed rates in an indeterminacy in the time path of government holding of international reserves. Thus, to the extent that arbitrariness is characteristic of agents' behavior it is not resolve6 but only masked by the fixing of exchange rates.
*Published:
Flood, Robert P., Peter M. Garber, and Louis O. Scott. "Collapsing Exchange Rate Regimes: Some Linear Examples." Journal of International Economics, (forthcoming).
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