Exchange Rate Economics: A Survey

ByMark P. Taylor, Ronald MacDonald

June 1, 1991

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We survey the literature on the two main views of exchange rate determination that have evolved since the early 1970s: the monetary approach to the exchange rate (in flex-price, sticky-price and real interest differential formulations) and the portfolio balance approach. We then go on to discuss the extant empirical evidence on these models and conclude by discussing how the future research strategy in the area of exchange rate determination is likely to develop. We also discuss the literature on foreign exchange market efficiency, on exchange rates and ‘news’ and on international parity conditions.

Subject: Currencies, Exchange rate modelling, Exchange rates, Financial services, Foreign exchange, Interest rate parity, Money, Purchasing power parity

Keywords: Canadian dollar, Currencies, exchange rate Economics, Exchange rate modelling, Exchange rates, expectations agent, forward rate, Interest rate parity, mark-dollar exchange rate, nominal exchange rate, nominal rate, portfolio balance equation, price level, Purchasing power parity, random walk, rate of exchange, risk neutrality, risk premium, time series, U.S. dollar, WP

Pages:
61
Volume:
1991
DOI:
https://doi.org/10.5089/9781451964394.001
Issue:
062
Series:
Working Paper No. 1991/062
Stock No:
WPIEA0621991
ISBN:
9781451964394
ISSN:
1018-5941

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Notes

Also published in Staff Papers, Vol. 39, No. 1, March 1992.

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