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Exchange Rate Behavior During the Great Recession

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  • John Harvey

Abstract

This paper offers a post-Keynesian/institutionalist explanation of the dollar-euro exchange rate around and during the Great Recession. It is shown that, consistent with theory, the financial sector played a dominant role. Capital flows drove foreign exchange rates, causing both mis-determination and tremendous volatility, and the real economy was forced to adjust to the conditions they created (a line of causation, incidentally, precisely the opposite of that suggested by Neoclassicism). Among the paper's conclusions are that currency price swings were clearly excessive, exchange rate fluctuations contributed to the sluggish recovery, and portfolio capital flows must be strictly controlled if these are to be avoided.

Suggested Citation

  • John Harvey, 2012. "Exchange Rate Behavior During the Great Recession," Journal of Economic Issues, Taylor & Francis Journals, vol. 46(2), pages 313-322.
  • Handle: RePEc:mes:jeciss:v:46:y:2012:i:2:p:313-322
    DOI: 10.2753/JEI0021-3624460206
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