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Factors determining exchange rates: the roles of relative price levels, balances of payments, interest rates and risk

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  • Peter Isard

    (International Monetary Fund (IMF) - Research Department)

Abstract

This paper focuses on an accounting framework that is useful for distinguishing between the effects on exchange rates of four separate factors: relative price levels, balances of payments, interest rates and risk. The framework rests upon an approximate identity, which is transformed into a behavioural model of exchange rates. The model is then applied in an attempt to explain the month-to-month behaviour of the US dollar versus the Deutsche Mark during the 1975-79 period.

Suggested Citation

  • Peter Isard, 1980. "Factors determining exchange rates: the roles of relative price levels, balances of payments, interest rates and risk," BIS Working Papers 4, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:4
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    References listed on IDEAS

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    1. Branson, William H. & Halttunen, Hannu & Masson, Paul, 1977. "Exchange rates in the short run: The dollar-dentschemark rate," European Economic Review, Elsevier, vol. 10(3), pages 303-324.
    2. 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, Wiley Blackwell, vol. 78(2), pages 229-248.
    3. Robert J. Barro, 1978. "A Stochastic Equilibrium Model of an Open Economy Under Flexible Exchange Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 92(1), pages 149-164.
    4. Pentti J.K. Kouri & Jorge B. de Macedo, 1978. "Exchange Rates and the International Adjustment Process," Cowles Foundation Discussion Papers 488, Cowles Foundation for Research in Economics, Yale University.
    5. John R. Martin & Paul R. Masson, 1979. "Exchange Rates and Portfolio Balance," NBER Working Papers 0377, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Peter Isard, 1982. "An accounting framework and some issues for modelling how exchange rates respond to the news," International Finance Discussion Papers 200, Board of Governors of the Federal Reserve System (U.S.).
    2. Abdul Rishad & Sanjeev Gupta & Akhil Sharma, 2021. "Official Intervention and Exchange Rate Determination: Evidence from India," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 13(3), pages 357-379, September.
    3. Ioannis N. Kallianiotis, 2021. "Exchange Rate Determination: The Portfolio-Balance Approach," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 11(1), pages 1-2.
    4. Ioannis N. Kallianiotis, 2018. "How Efficient is the Foreign Exchange Market?," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 4(3), pages 293-326, July.
    5. Ioannis N. Kallianiotis, 2017. "Tests of Efficiency in the Foreign Exchange Market," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 3(10), pages 218-239, 10-2017.
    6. Threemonkong, Attapol, 1992. "An intertemporal-optimizing general equilibrium model of exchange rates and external imbalances," ISU General Staff Papers 1992010108000012961, Iowa State University, Department of Economics.
    7. Peter Isard, 1983. "What's wrong with empirical exchange rate models: some critical issues and new directions," International Finance Discussion Papers 226, Board of Governors of the Federal Reserve System (U.S.).
    8. Peter Hooper & John E. Morton, 1980. "Fluctuations in the dollar: a model of nominal and real exchange rate determination," International Finance Discussion Papers 168, Board of Governors of the Federal Reserve System (U.S.).
    9. Michael M. Hutchison, 1984. "Intervention, deficit finance and real exchange rates: the case of Japan," Economic Review, Federal Reserve Bank of San Francisco, issue Win, pages 27-44.
    10. Michael L. Mussa, 1984. "The Theory of Exchange Rate Determination," NBER Chapters, in: Exchange Rate Theory and Practice, pages 13-78, National Bureau of Economic Research, Inc.

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