Approaches To Exchange Rate Analysis—An Introduction
It is the fate of social scientists to shoot at moving targets. At about the time when macro economists started to understand the operations of a world economy with fixed exchange rates, or adjustable pegs, the system was replaced with a regime with considerable exchange rate flexibility, occasionally even floating rates. As a consequence, prevailing “embryos” to a theory of the balance of payments for a regime of flexible rates—as formulated by Milton Friedman, James Meade, Egon Sohmen and others—were suddenly put into empirical test and found to be in need of some modification. The same can be said about theoretical suggestions concerning the performance of stabilization policy under alternative exchange rate regimes, as formulated inter alia by Marcus Fleming and Robert Mundell.
KeywordsExchange Rate Current Account Financial Asset Purchase Power Parity Exchange Rate Regime
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