In this presentation Lawrence Christiano (Northwestern University) discusses the research presented by Louphou Coulibaly (University of Wisconsin-Madison).
Since the demise of Bretton-Woods, the world supposedly moved on to a floating exchange rate regime. But, in practice central banks intervene to keep the exchange rate from moving too much. It thus appears that there is a ‘Fear of Floating’. The research by Bianchi – Coulibaly: fear of floating reflects fears about non-fundamental volatility due to financial frictions that would emerge if floating actually occurred.
This discussion presents an alternative interpretation (which may not be so different from Bianchi – Coulibaly at a deeper level).