An accounting framework for understanding exchange rates

John T. Harvey

Chapter 1 in Central Banking, Monetary Policy, and Exchange Rates, 2026, pp 6-22 from Edward Elgar Publishing

Abstract: Post Keynesian exchange rate theory has developed largely independent of the corresponding trade theory. As a result, some elements appear to be inconsistent with one another. This is not the case, however, particularly when one includes the role of trade finance. In order to see this clearly, it is necessary to place all the component parts into a single framework that can manage both an explanation of exchange rate determination based on the assumption that capital flows play the primary role and a trade theory that argues that price factors are secondary and absolute advantage is more important than comparative advantage. The purpose of this chapter is to offer an accounting system that takes these factors into account and includes specifics regarding the determinants of capital flows, trade, and exchange rates. It is an important and fundamental component of a Post Keynesian exchange rate theory.

Keywords: Central Banking; Monetary Policy; Exchange Rates; Capital Flows; Post Keynesian Economics; Open Economies (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035330041
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