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La Relación entre las Tasas de Interés y el Tipo de Cambio Bajo un Sistema de Cambio Flotante

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Author Info
Sebastián Edwards

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Abstract

This paper develops a simple model of exchange rate determination under a floating system. The model is used to investigate the relationship between nominal interest rates movements and the exchange rate. It is shown that, depending on the nature of interest rate changes, these could be either positively or negatively related to exchange rate movements. The model also indicates that the spot exchanges rate in any period t, will differ from its expected value, as determined in the previous period (t-1), due to the incorporation of new information. This suggests that in countries where there are large unexpected changes in the exchange rate determinants, the exchange rate might be unnecessarily volatile.

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Publisher Info
Article provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its journal Cuadernos de Economía.

Volume (Year): 20 (1983)
Issue (Month): 59 ()
Pages: 65-74
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Handle: RePEc:ioe:cuadec:v:20:y:1983:i:59:p:65-74

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  1. Barro, Robert J, 1980. "A Capital Market in an Equilibrium Business Cycle Model," Econometrica, Econometric Society, vol. 48(6), pages 1393-1417, September. [Downloadable!] (restricted)
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  2. Edwards, Sebastian, 1983. "Floating exchange rates, expectations and new information," Journal of Monetary Economics, Elsevier, vol. 11(3), pages 321-336. [Downloadable!] (restricted)
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  3. Rudiger Dornbusch, 1980. "Exchange Rate Economics: Where Do We Stand?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1980-1), pages 143-206. [Downloadable!]
  4. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October. [Downloadable!] (restricted)
  5. Mussa, Michael, 1982. "A Model of Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 74-104, February. [Downloadable!] (restricted)
  6. Edwards, Sebastian, 1982. "Exchange rate market efficiency and new information," Economics Letters, Elsevier, vol. 9(4), pages 377-382. [Downloadable!] (restricted)
  7. Hodrick, Robert J., 1981. "International asset pricing with time-varying risk premia," Journal of International Economics, Elsevier, vol. 11(4), pages 573-587, November. [Downloadable!] (restricted)
  8. Dornbusch, Rudiger, 1976. " The Theory of Flexible Exchange Rate Regimes and Macroeconomic Policy," Scandinavian Journal of Economics, Blackwell Publishing, vol. 78(2), pages 255-75.
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  9. Mussa, Michael, 1976. " The Exchange Rate, the Balance of Payments and Monetary and Fiscal Policy under a Regime of Controlled Floating," Scandinavian Journal of Economics, Blackwell Publishing, vol. 78(2), pages 229-48.
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