Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
The paper employs the intergenerational model to derive the demands for domestic and foreign currencies from microeconomic optimizing behavior. In the absence of government policy, we obtain the Kareken and Wallace result that exchange rates are constant and indeterminate. We discuss the reasons why nations may find it in their interests to impose probabilistic capital controls. It is shown that the imposition of probabilistic capital controls yields a unique (generally nonstationary) exchange rate path and that this path is determined in accord with the Monetary Approach. As the probability of controls tends to zero, the exchange rate remains determinate.