The Theory of Flexible Exchange Rate Regimes and Macroeconomic Policy

Rüdiger Dornbusch

A chapter in Flexible Exchange Rates and Stabilization Policy, 1977, pp 123-143 from Palgrave Macmillan

Abstract: Abstract This paper develops three perspectives on the determination of exchange rates and their interaction with macroeconomic equilibrium and aggregate policies. A long- run view characterizes exchange rate determination in terms of monetary and real factors where the real aspects include an explicit consideration of relative price structures. A short-run or “liquidity” view of the exchange rate emphasizes the role of asset market equilibrium and expectations. A policy view, finally, analyses the effectiveness of aggregate policies and points out that in the short-run nominal disturbances will tend to be transmitted internationally. The paper concludes with an analysis of dual exchange rate systems as a stabilizing policy in the presence of speculative disturbances.

Keywords: Exchange Rate; Interest Rate; Relative Price; Money Demand; Forward Rate (search for similar items in EconPapers)
Date: 1977
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Working Paper: The Theory of Flexible Exchange Rate Regimes and Macroeconomic Policy (1975)
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-03359-1_11

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DOI: 10.1007/978-1-349-03359-1_11

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