Abstract
When exchange rates were floated in the early 1970s, economists had certain expectations about the consequences. Nominal exchange rates would be as stable as the macroeconomic “fundamentals” and speculation would be based upon rational expectations. The real exchange rate would be stationary, and the nominal exchange rate would move proportionately with relative prices, which are determined by relative money stocks/GDP. This is referred to as the Monetary Model-PPP hypothesis. By the mid 1980s, economists concluded that these expectations were belied.
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Stein, J.L. (1999). The Evolution of the Real Value of the US Dollar Relative to the G7 Currencies. In: MacDonald, R., Stein, J.L. (eds) Equilibrium Exchange Rates. Recent Economic Thought Series, vol 69. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-4411-7_3
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DOI: https://doi.org/10.1007/978-94-011-4411-7_3
Publisher Name: Springer, Dordrecht
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