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Explanations of Exchange Rate Volatility and Other Empirical Regularities in Some Popular Models of the Foreign Exchange Market

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  • Robert P. Flood

Abstract

The present paper is intended to accomplish two tasks. First, models predicting overshooting and magnification, respectively, will be checked for their consistency with two key empirical regularities: A. The observed pattern of price level vs. exchange-rate volatility. B. The observed pattern of spot exchange-rate vs. forward exchange-rate volatility. Second, a widely neglected reason for exchange-rate volatility, activist monetary policy, will be studied.

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File URL: http://www.nber.org/papers/w0625.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0625.

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Date of creation: Feb 1981
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Publication status: published as Flood, Robert P. "Explanations of Exchange-Rate Volatility and Other Empirical Regularities in Some Popular Models of the Foreign Exchange Market." Carnegie-Rochester Conference Series on Public Policy, Vol. 15, The Costs and Consequences of Inflation, pp. 219-249, (Autumn 1981).
Handle: RePEc:nbr:nberwo:0625

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  1. Frankel, Jeffrey A, 1979. "On the Mark: A Theory of Floating Exchange Rates Based on Real Interest Differentials," American Economic Review, American Economic Association, vol. 69(4), pages 610-22, September.
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Cited by:
  1. Weber, Axel A., 1997. "Sources of Purchasing Power Disparities Between the G3-Economies," Discussion Paper Serie B 419, University of Bonn, Germany.
  2. Meese, Richard & Rogoff, Kenneth, 1986. "Was it real? The exchange rate -- Interest differential relation: 1973-1984," Journal of Economic Dynamics and Control, Elsevier, vol. 10(1-2), pages 297-298, June.
  3. Weber, Axel A., 1997. "Sources of Currency Crisis: An Empirical Analysis," Discussion Paper Serie B 418, University of Bonn, Germany.
  4. Thomas M. Humphrey, 1981. "Explaining exchange rate behavior : an augmented version of the monetary approach," Economic Review, Federal Reserve Bank of Richmond, issue May, pages 3-11.
  5. Jeffrey A. Frankel & James H. Stock, 1983. "A Relationship Between Regression Tests and Volatility Tests of Market ncy," NBER Working Papers 1105, National Bureau of Economic Research, Inc.
  6. Jordi Galí & Richard Clarida, 1993. "Sources of real exchage rate fluctuations: How important are nominal shocks?," Economics Working Papers 66, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 1994.
  7. Alberto Giovannini, 1988. "The Macroeconomics of Exchange-rate and Price-level Interactions: Empirical Evidence for West Germany," NBER Working Papers 2544, National Bureau of Economic Research, Inc.
  8. Papell, David H., 1985. "Activist monetary policy, imperfect capital mobility, and the overshooting hypothesis," Journal of International Economics, Elsevier, vol. 18(3-4), pages 219-240, May.
  9. Irving B. Kravis & Robert E. Lipsey, 1982. "Towards an Explanation of National Price Levels," NBER Working Papers 1034, National Bureau of Economic Research, Inc.
  10. Axel A. Weber, 1998. "Sources of Currency Crises: An Empirical Analysis," Working Papers 25, Oesterreichische Nationalbank (Austrian Central Bank).

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