Real Exchange Rates: Definition, Measurement, and Trends in France, West Germany, Italy and the United Kingdom
One of the disappointments of over a decade of greater exchange rate flexibility among the major economies has been the limited degree to which the current system protects its participants from sharp and prolonged changes in real, or price-adjusted exchange rates. The argument in the 1960s and early 1970s, by the advocates of floating rates, that flexible rates would tend to insulate members of the present exchange system from external disturbances now appears too optimistic. The consensus view of the exchange rate as the key endogenous variable of an open economy emphasized its equilibrating effect on the current account, and in retrospect had too little to say about the effects of international capital mobility.
KeywordsExchange Rate Real Exchange Rate Purchase Power Parity Nominal Exchange Rate European Monetary System
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