TY - JOUR
T1 - The role of elasticity optimism in choosing an optimal currency basket with applications to Israel
AU - June Flanders, M.
AU - Tishler, Asher
N1 - Funding Information:
The first author’s research was partially financed by the Ford Foundation, to whom thanks are gratefully extended. We wish to thank Assaf Raxia, Martin Cherkas and a referee for this Journal for ,their helpful comments.
PY - 1981/8
Y1 - 1981/8
N2 - In a world in which exchange rates are floating each country must have some device for measuring the average exchange rate change, whatever exchange rate policy it chooses. The weight for each currency in computing such an average depends on the objective which exchange rate stabilization, or change, is expected to achieve. If balance of trade stability is the desideratum, the optimum weights (optimum currency basket) are shown to be a function of demand elasticities, GNP, trade shares, etc. We derive a loss function measuring the cost of using a 'wrong' basket, and compute the value of this function for our 'optimal' Israeli basket as a case study.
AB - In a world in which exchange rates are floating each country must have some device for measuring the average exchange rate change, whatever exchange rate policy it chooses. The weight for each currency in computing such an average depends on the objective which exchange rate stabilization, or change, is expected to achieve. If balance of trade stability is the desideratum, the optimum weights (optimum currency basket) are shown to be a function of demand elasticities, GNP, trade shares, etc. We derive a loss function measuring the cost of using a 'wrong' basket, and compute the value of this function for our 'optimal' Israeli basket as a case study.
UR - http://www.scopus.com/inward/record.url?scp=0013498848&partnerID=8YFLogxK
U2 - 10.1016/0022-1996(81)90005-2
DO - 10.1016/0022-1996(81)90005-2
M3 - ???researchoutput.researchoutputtypes.contributiontojournal.article???
AN - SCOPUS:0013498848
SN - 0022-1996
VL - 11
SP - 395
EP - 406
JO - Journal of International Economics
JF - Journal of International Economics
IS - 3
ER -