A Model of Foreign Exchange Rate Indetermination

Charles Engel

No 5766, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Economic agents undertake actions to protect themselves from the short-run impact of foreign exchange rate fluctuations: Nominal goods prices are set in consumers' currencies, and firms hedge foreign exchange risk. A model is presented here which shows that these features of the economy can lead to indeterminacy in the nominal exchange rate in the short run. There can be noise in the exchange rate, unrelated to any fundamentals, essentially because the short-run fluctuations do not influence any rational agent's behavior. Empirical implications of this sort of noise are explored.

JEL-codes: F40 (search for similar items in EconPapers)
Date: 1996-09
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.nber.org/papers/w5766.pdf (application/pdf)

Related works:
Working Paper: A Model of Foreign Exchange Rate Indetermination (1996)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:5766

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w5766

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().