An attempt is made to explain theoretically the recent rise and decline of the dollar exchange rate. The notion which attributes the 1980-87 dollar movement to destabilizing speculation is rejected because it is inconsistent with the data. A "refined transfer approach of exchange rate movements" is then presented: the exchange rate reflects the relative price between tradables and nontradables. As elasticities of commodity supplies are greater in the long run than in the short run, an emerging current account deficit will induce an appreciation and a subsequent depreciation. This is what happened to the dollar exchange rate during 1980-87. Copyright 1990 by WWZ and Helbing & Lichtenhahn Verlag AG
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Article provided by Blackwell Publishing in its journal Kyklos.