Equilibrium and Disequilibrium Exchange Rates / Rudiger Dornbusch.

By:

Dornbusch, Rudiger

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w0983.Publication details: Cambridge, Mass. National Bureau of Economic Research 1982.Description: 1 online resource: illustrations (black and white)Subject(s):

F - International Economics

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: The paper reviews theoretical developments in the field of exchange rate theory and assesses the empirical evidence. Since the empirical evidence does not lend support to the models that have been formulated, a number of reasons for that failure are suggested. These include the argument that the current account has been overrated as an exchange rate determinant and that the role of "news" as yet remains to be tested in an extensive way. Four exchange rate problems are identified as possibly giving justification to exchange market intervention or other policies. They are the possibility of speculative bubbles, the peso problem, the use of irrelevant information and the problem of real appreciation in the case of monetarist stabilization. In each case the exchange rate can deviate from fundamentals, following the asset market rather than the goods market and thus disturbing macroeconomic equilibrium.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w0983 (Browse shelf(Opens below))	Not For Loan

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September 1982.

The paper reviews theoretical developments in the field of exchange rate theory and assesses the empirical evidence. Since the empirical evidence does not lend support to the models that have been formulated, a number of reasons for that failure are suggested. These include the argument that the current account has been overrated as an exchange rate determinant and that the role of "news" as yet remains to be tested in an extensive way. Four exchange rate problems are identified as possibly giving justification to exchange market intervention or other policies. They are the possibility of speculative bubbles, the peso problem, the use of irrelevant information and the problem of real appreciation in the case of monetarist stabilization. In each case the exchange rate can deviate from fundamentals, following the asset market rather than the goods market and thus disturbing macroeconomic equilibrium.