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Exchange Rate Economics: A Survey

Author

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  • Mr. Mark P. Taylor
  • Mr. Ronald MacDonald

Abstract

We survey the literature on the two main views of exchange rate determination that have evolved since the early 1970s: the monetary approach to the exchange rate (in flex-price, sticky-price and real interest differential formulations) and the portfolio balance approach. We then go on to discuss the extant empirical evidence on these models and conclude by discussing how the future research strategy in the area of exchange rate determination is likely to develop. We also discuss the literature on foreign exchange market efficiency, on exchange rates and ‘news’ and on international parity conditions.

Suggested Citation

  • Mr. Mark P. Taylor & Mr. Ronald MacDonald, 1991. "Exchange Rate Economics: A Survey," IMF Working Papers 1991/062, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1991/062
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    Keywords

    WP; rate of exchange; U.S. dollar; random walk; risk premium; forward rate; price level; risk neutrality; time series; expectations agent; exchange rate Economics; mark-dollar exchange rate; nominal rate; portfolio balance equation; Canadian dollar; nominal exchange rate; Exchange rates; Purchasing power parity; Currencies; Interest rate parity; Exchange rate modelling;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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