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Basic Exchange Rate Theories

Author

Listed:
  • Charles van Marrewijk

    (Faculty of Economics, Erasmus Universiteit Rotterdam)

Abstract
This four-chapter overview of basic exchange rate theories discusses (i) the elasticity and absorption approach, (ii) the (long-run) implications of the monetary approach, (iii) the short-run effects of monetary and fiscal policy under various economic conditions, and (iv) the transition from short-run to long-run in a sticky-price model with rational expectations. We provide ample anecdotal, historical, and heuristic information on the goodness-of-fit of the various exchange rate models based on simple graphs, statistics, and tests. Details are provided in technical notes.

Suggested Citation

  • Charles van Marrewijk, 2005. "Basic Exchange Rate Theories," Tinbergen Institute Discussion Papers 05-024/2, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20050024
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    References listed on IDEAS

    as
    1. Charles van Marrewijk, 2005. "Basic Exchange Rate Theories," Tinbergen Institute Discussion Papers 05-024/2, Tinbergen Institute.
    2. Sargent, Thomas J, 1972. "Rational Expectations and the Term Structure of Interest Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 4(1), pages 74-97, Part I Fe.
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    25. Kouri, Pentti J K & Porter, Michael G, 1974. "International Capital Flows and Portfolio Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 443-467, May/June.
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    27. Frankel, Jeffrey A & Froot, Kenneth A, 1987. "Using Survey Data to Test Standard Propositions Regarding Exchange Rate Expectations," American Economic Review, American Economic Association, vol. 77(1), pages 133-153, March.
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    Cited by:

    1. Iwegbu, Onyebuchi & Nwaogwugwu, Isaac Chiawolam, 2019. "Effect of Exchange Rate Shock on Key Sectors of the Nigerian Economy," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 507-533.
    2. Mpoha, Salifya & Bonga-Bonga, Lumengo, 2020. "Assessing the extent of exchange rate risk pricing in equity markets: emerging versus developed economies," MPRA Paper 99597, University Library of Munich, Germany.
    3. Charles Van Marrewijk, 2005. "Basic Exchange Rate Theories," Centre for International Economic Studies Working Papers 2005-01, University of Adelaide, Centre for International Economic Studies.

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    More about this item

    Keywords

    exchange rates; expectations; monetary approach; elasticity; absorption; overshooting; monetary policy; fiscal policy;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • F - International Economics
    • G - Financial Economics

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