The chaotic behavior of foreign exchange rates.

From: American Economist | Date: September 22, 1991| Author: | Copyright information

1. Introduction

In the early 1970s, many economists believed that the floating currency exchange rates that were to characterize the post-Bretton Woods period could be well explained by the purchasing power parity theory [see Bilson and Marston, 1984]. As empirical data soon demonstrated, however, the theory was not sufficient to explain the large fluctuations in exchange rates, and the latter

part of the decade saw the development of several new economic theories of exchange rate determination. Among these are the theories of Dornbusch (1976), Mussa (1976), and Frenkel ...

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