Equilibrium and Disequilibrium Exchange Rates
AbstractThe paper reviews theoretical developments in the field of exchange rate theory and assesses the empirical evidence. Since the empirical evidence does not lend support to the models that have been formulated, a number of reasons for that failure are suggested. These include the argument that the current account has been overrated as an exchange rate determinant and that the role of "news" as yet remains to be tested in an extensive way. Four exchange rate problems are identified as possibly giving justification to exchange market intervention or other policies. They are the possibility of speculative bubbles, the peso problem, the use of irrelevant information and the problem of real appreciation in the case of monetarist stabilization. In each case the exchange rate can deviate from fundamentals, following the asset market rather than the goods market and thus disturbing macroeconomic equilibrium.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0983.
Date of creation: Sep 1982
Date of revision:
Publication status: published as Dornbusch, Rudiger. "Equilibrium and Disequilibrium Exchange Rates." Zeitschrift fur Wirtschaftsund Sozialwissenschaften, Vol. 102, No. 6, (1982) pp. 573-599.
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