Exchange rates and prices.

From: NBER Reporter | Date: December 22, 1998| Author: | Copyright information

The development of a model that can ascertain fundamental economic causes of short-run exchange rate movements is not plausible, primarily because several short-run exchange rate movements are propelled by herding behavior of speculators. The existing models that seek to address this requirement but have their respective limitations include those from Frankel and Froot, and Dornbusch. Further serious research is recommended to comprehend whether nonfundamental speculation can actually impel short-run behavior of exchange rates.

In the early 1970s, when the industrialized countries ...

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