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Exchange rates and fundamentals

Author

Listed:
  • Engel, Charles
  • West, Kenneth D.

Abstract

Standard economic models hold that exchange rates are influenced by fundamental variables such as relative money supplies, outputs, inflation rates and interest rates. Nonetheless, it has been well documented that such variables little help predict changes in floating exchange rates -- that is, exchange rates follow a random walk. We show that the data do exhibit a related link suggested by standard models JEL Classification: F31, F37, G15, G12

Suggested Citation

  • Engel, Charles & West, Kenneth D., 2003. "Exchange rates and fundamentals," Working Paper Series 248, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2003248
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    References listed on IDEAS

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    More about this item

    Keywords

    asset price; exchange rates; monetary model; present value; random walk;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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