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Theories of Exchange-Rate Determination

In: International Macroeconomics

Author

Listed:
  • Graham Bird

    (University of Surrey)

Abstract

The general theory of the balance of payments constructed in the previous chapter may, with little difficulty, be modified to become a general theory of exchange-rate determination. With flexible exchange rates, a position of equilibrium as represented by a point of intersection between IS and LM, which lies off the BP schedule will result in a change in the exchange rate. Where equilibrium occurs below BP, giving a payments deficit, the exchange rate will depreciate. Where it occurs above BP giving a payments surplus the exchange rate will appreciate.

Suggested Citation

  • Graham Bird, 1987. "Theories of Exchange-Rate Determination," Palgrave Macmillan Books, in: International Macroeconomics, chapter 5, pages 49-65, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-09829-0_5
    DOI: 10.1007/978-1-137-09829-0_5
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