Theories of Exchange-Rate Determination

Graham Bird

Chapter 5 in International Macroeconomics, 1998, pp 49-65 from Palgrave Macmillan

Abstract: Abstract The general theory of the balance of payments constructed in the previous chapter may, with little difficulty, be modified to become a general theory of exchange-rate determination. With flexible exchange rates, a position of equilibrium as represented by a point of intersection between IS and LM, which lies off the BP schedule will result in a change in the exchange rate. Where equilibrium occurs below BP, giving a payments deficit, the exchange rate will depreciate. Where it occurs above BP giving a payments surplus the exchange rate will appreciate.

Keywords: Exchange Rate; Interest Rate; Current Account; Money Supply; Purchase Power Parity (search for similar items in EconPapers)
Date: 1998
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DOI: 10.1057/9780230372290_5

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