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REcent Exchange Rate Experience and Proposals for Reform

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  • Frankel, Jeffrey A.

Abstract

The paper reviews the grounds for fears that foreign exchange markets are not behaving as well as they should: recent misalignments and crises, and seven sets of academic findings. (1) Exchange rate volatility is high, (2) with possible adverse effects. (3) Volatility cannot be explained by observable fundamentals, (4) and changes when the regime changes, even without a change in volatility of fundamentals. (5) Expectations appear to be biased. (6) Short-term expectations are destabilizing. And (7) the effect of changes in monetary policy on the exchange rate is drawn out over time, and is not instantaneous.

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Bibliographic Info

Paper provided by Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley in its series Center for International and Development Economics Research, Working Paper Series with number qt62f2p0w1.

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Date of creation: 01 Jan 1996
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Handle: RePEc:cdl:ciders:qt62f2p0w1

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Related research

Keywords: exchange rate; foreign exchange market; volatility; speculation; bubble; McKinnon; Tobin tax; Social and Behavioral Sciences;

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Cited by:
  1. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Economic Structure and the Decision to Adopt a Common Currency," Seminar Papers 611, Stockholm University, Institute for International Economic Studies.
  2. Cho, Guedae & Kim, MinKyoung & Koo, Won W., 2003. "Relative Agricultural Price Changes In Different Time Horizons," 2003 Annual meeting, July 27-30, Montreal, Canada 22249, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Cho, Guedae & Sheldon, Ian M. & McCorriston, Steve, 2000. "Exchange Rate Misalignment And Agricultural Trade," 2000 Annual meeting, July 30-August 2, Tampa, FL 21824, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. Evrensel, Ayse Y. & Kim, Jong Sung, 2006. "Macroeconomic policies and participation in IMF programs," Economic Systems, Elsevier, vol. 30(3), pages 264-281, October.
  5. Frank Westerhoff, 2004. "The effectiveness of Keynes-Tobin transaction taxes when heterogeneous agents can trade in different markets: A behavioral finance approach," Computing in Economics and Finance 2004 14, Society for Computational Economics.
  6. Drama, Bedi Guy Herve, 2010. "The Effects of Real Exchange Rate on Trade Balance in Cote d’Ivoire: Evidence from the Cointegration Analysis and Error-Correction Models," MPRA Paper 21810, University Library of Munich, Germany.

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