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Recent Developments in Monetary Models of Exchange Rate Determination (Evolution récente des modèles monétaires de détermination des taux de change) (Progreso reciente en el campo de los modelos monetarios para la determinación del tipo de cambio)

Author

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  • John F. O. Bilson

    (International Monetary Fund)

Abstract

The seminal contributors to the monetary approach to the balance of payments suggested that the approach could be applied to a flexible exchange rate regime with only minor modifications. A number of characteristics of recent exchange rate behavior, however, are in conflict with the traditional approach. These include persistent deviations from purchasing power parity, the large variance of short-term exchange rate movements, and the importance of speculation in the determination of the exchange rate. The conflict between theory and evidence has led to a number of attempts to extend the monetary approach in directions that reconcile the model with recently observed exchange rate behavior. In this paper, these attempts are classified in three distinct approaches to the theory of exchange rate determination. While maintaining the emphasis of early monetary models on the integration of international asset markets and the stability of the money demand function, the new approaches also account for deviations from purchasing power parity, the endogenous determination of the interest rate, and the possibility that national currencies are close substitutes in a portfolio of currencies. An integrated model, which is capable of empirical verification, is also presented. /// Les théoriciens dont les œuvres ont ouvert la voie à l'approche monétaire de la balance des paiements ont indiqué que cette même approche pouvait être appliquée à un régime de taux de change flexibles avec quelques modifications de détail seulement. Plusieurs caractéristiques du comportement récent des taux de change vont toutefois à l'encontre de l'approche orthodoxe, entre autres, les écarts persistants par rapport à la parité des pouvoirs d'achat, la forte amplitude des variations des taux de change à court terme et l'importance de la spéculation dans la détermination des taux. La disparité entre la théorie et les faits a incité plusieurs auteurs à essayer d'élargir l'approche monétaire pour que le modèle soit applicable aux mouvements des taux récemment enregistrés. Dans la présente étude, ces tentatives sont classées en trois groupes distincts en fonction de l'approche adoptée pour la détermination des taux de change. Tout en accordant autant d'importance que les premiers modèles monétaires à l'intégration des marchés des actifs internationaux et à la stabilité de la fonction de demande de monnaie, les approches nouvelles tiennent compte aussi des écarts par rapport à la parité des pouvoirs d'achat, des facteurs endogènes déterminant le taux d'intérêt et de la facilité avec laquelle les monnaies nationales peuvent se substituer les unes aux autres dans un portefeuille de monnaies. L'auteur présente également un modèle intégré, susceptible d'être vérifié empiriquement. /// Algunos autores que han aportado ideas fecundas al enfoque monetario del estudio de la balanza de pagos han sugerido que dicho enfoque podría aplicarse, con ligeras modificaciones, a un régimen de tipos de cambio flexibles. Sin embargo, ciertas características del comportamiento reciente de los tipos de cambio están reñidas con el enfoque tradicional. Entre ellas se hallan la persistente desviación con respecto a la paridad de poder adquisitivo, la gran variabilidad de las fluctuaciones de los tipos de cambio a corto plazo y la influencia de la especulación en la determinación del tipo de cambio. El conflicto entre la teoría y la realidad de los hechos ha ocasionado una serie de intentos de ampliar el enfoque monetario en terrenos en los que se facilite la reconciliación entre el modelo y el comportamiento recientemente observado en los tipos de cambio. En el presente trabajo se clasifican dichos intentos en tres modalidades claras de la teoría de la determinación de los tipos de cambio. Aunque se sigue manteniendo la importancia que se concedía a la integración de los mercados internacionales de activos y a la estabilidad de la función de demanda de dinero en los primeros modelos monetarios, en los nuevos enfoques se tienen también en cuenta las desviaciones con respecto a la paridad de poder adquisitivo, la determinación endógena del tipo de interés y la posibilidad de que la moneda nacional constituya un sustituto muy parecido en una cartera de monedas. Se presenta también un modelo integrado en el que es factible la verificación empírica.

Suggested Citation

  • John F. O. Bilson, 1979. "Recent Developments in Monetary Models of Exchange Rate Determination (Evolution récente des modèles monétaires de détermination des taux de change) (Progreso reciente en el campo de los modelos m," IMF Staff Papers, Palgrave Macmillan, vol. 26(2), pages 201-223, June.
  • Handle: RePEc:pal:imfstp:v:26:y:1979:i:2:p:201-223
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    Cited by:

    1. Bilson, John F O, 1981. "The "Speculative Efficiency" Hypothesis," The Journal of Business, University of Chicago Press, vol. 54(3), pages 435-451, July.
    2. Kodongo, Odongo & Ojah, Kalu, 2013. "Real exchange rates, trade balance and capital flows in Africa," Journal of Economics and Business, Elsevier, vol. 66(C), pages 22-46.
    3. Stuart Landon & Constance E. Smith, 2003. "The Risk Premium, Exchange Rate Expectations, and the Forward Exchange Rate: Estimates for the Yen--Dollar Rate," Review of International Economics, Wiley Blackwell, vol. 11(1), pages 144-158, February.
    4. Adeniji, Sesan, 2013. "Investigating the Relationship between Currency Substitution, Exchange Rate and Inflation in Nigeria: An Autoregressive Distributed Lag (ARDL) Approach," MPRA Paper 52551, University Library of Munich, Germany, revised 28 Dec 2013.
    5. Robert E. Cumby & Maurice Obstfeld, 1984. "International Interest Rate and Price Level Linkages under Flexible Exchange Rates: A Review of Recent Evidence," NBER Chapters,in: Exchange Rate Theory and Practice, pages 121-152 National Bureau of Economic Research, Inc.
    6. Li, Kui-Wai, 2011. "Identifying the Signs of Currency Speculation in Hong Kong's Linked exchange Rate," MPRA Paper 35279, University Library of Munich, Germany.
    7. John H. Makin, 1981. "International Capital Flows under Full Monetary Equilibrium: An Empirical Analysis," NBER Working Papers 0648, National Bureau of Economic Research, Inc.
    8. Vijay Bhawnani & K. Rao Kadiyala, 1997. "Forecasting foreign exchange rates in developing economies," Applied Economics, Taylor & Francis Journals, vol. 29(1), pages 51-62.

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