IDEAS home Printed from https://ideas.repec.org/p/mit/worpap/228.html
   My bibliography  Save this paper

Monetary Policy Under Exchange Rate Flexibility

Author

Listed:
  • R. Dornbusch

Abstract

The continuing depreciation of the dollar stands out as one of the big policy issues. It has started to impinge on U.S. monetary policy; it influences the chances for international commercial diplomacy, and it is enhancing the move toward European monetary integration. Above all it leaves most observers with a puzzle as to the causes of the ongoing depreciation. This paper will, of course, not resolve the puzzle. ft rather attempts to layout the basic analytical framework that has been developed for the analysis of exchange-rate questions and to relate it to the question of monetary policy. Part I concentrates on the development of the relevant theoretical framework. The main points to be made here are: (i) exchange rates are primarily deter-mined in asset markets with expectations playing a dominant role; (ii) the sharpest formulation of exchange-rate theory is the "monetary approach, "Chicago's quantity theory of the open economy; (iii) purchasing power parity is a precarious reed on which to hang short-term exchange-rate theory; (iv) the current account has just made it back as a determinant of exchange rates
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • R. Dornbusch, 1979. "Monetary Policy Under Exchange Rate Flexibility," Working papers 228, Massachusetts Institute of Technology (MIT), Department of Economics.
    • Handle: RePEc:mit:worpap:228
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pagoulatos, Emilio & Shonkwiler, J. Scott & Canler, Edward, 1984. "An Empirical Analysis Of Macroeconomic Factors Influencing The Agricultural Exchange Rate Of The Dollar," 1984 Annual Meeting, August 5-8, Ithaca, New York 279078, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Henriksson, Roy. & Lessard, Donald R., 1982. "The efficiency of the forward exchange market : a conditional nonparametric test of forecasting ability," Working papers 1337-82., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    3. John Murray & Mark Zelmer & Zahir Antia, 2000. "International Financial Crises and Flexible Exchange Rates: Some Policy Lessons from Canada," Technical Reports 88, Bank of Canada.
    4. Keen, Peter G. W., 1979. "Information systems and organizational change," Working papers 1087-79. Report (Alfred P, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    5. Amjad Fakher & Muhammad Akbar & Rana Ejaz Ali Khan, 2021. "Dynamics of Relationship Between Macroeconomic Fundamentals and Exchange Rate: A Comparison of Advanced and Least Developed Countries," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 9(2), pages 166-178, June.
    6. Melvin, Michael & Prins, John & Shand, Duncan, 2013. "Forecasting Exchange Rates: an Investor Perspective," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 721-750, Elsevier.
    7. John Sarich, 2006. "What do we know about the real exchange rate? A classical cost of production story," Review of Political Economy, Taylor & Francis Journals, vol. 18(4), pages 469-496.
    8. Jacques Mélitz, 1982. "Jusqu'à quel point doit-on simplifier la modélisation du taux de change ?," Revue Économique, Programme National Persée, vol. 33(4), pages 675-694.
    9. Ernesto LEON CASTRO & Ezequiel AVILÉS OCHOA & Anna Maria GIL LAFUENTE, 2016. "Exchange Rate Usd/Mxn Forecast Through Econometric Models, Time Series And Howma Operators," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 50(4), pages 135-150.
    10. M. Faizul Islam & Mohammad S. Hasan, 2006. "The Monetary Model of the Dollar-Yen Exchange Rate Determination: A Cointegration Approach," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 5(2), pages 129-145, August.
    11. Richard K. Lyons, 1991. "Floating Exchange Rates in Peru, 1950-54," NBER Working Papers 3775, National Bureau of Economic Research, Inc.
    12. Kumah, F.Y., 1996. "The Effect of Monetary Policy on Exchange Rates : How to Solve the Puzzles," Discussion Paper 1996-70, Tilburg University, Center for Economic Research.
    13. Kumah, F.Y., 1996. "The Effect of Monetary Policy on Exchange Rates : How to Solve the Puzzles," Other publications TiSEM bd740a88-6e13-4285-bd5b-b, Tilburg University, School of Economics and Management.
    14. Manuel BENAZIC & Ines KERSAN-SKABIC, 2016. "The determinants of exchange rate in Croatia," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 7, pages 125-150, June.
    15. Jacob A. Frenkel, 1980. "The Collapse of Purchasing Power Parities during the 1970s," NBER Working Papers 0569, National Bureau of Economic Research, Inc.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mit:worpap:228. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Linda Woodbury (email available below). General contact details of provider: https://edirc.repec.org/data/edmitus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.