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Review of exchange-rate theories in four leading economics textbooks

Author

Listed:
  • Jan Priewe

    (Professor of Economics (emeritus), University of Applied Sciences (HTW), Berlin and Senior Research Fellow, Macroeconomic Policy Institute (IMK), Düsseldorf, Germany)

Abstract

In this paper, the parts of four leading economics textbooks that deal with exchange-rate theories are reviewed. The books are by Krugman/Obstfeld/Melitz, Blanchard/Johnson, Mankiw/Taylor and Samuelson/Nordhaus. The theoretical background for this exercise is the fact that exchange-rate theory is one of the weakest parts in ‘mainstream economics’, meaning the neoclassical and the New Keynesian stream of thought. It is now widely accepted that exchange-rate forecasts are no better than those arising from a random walk in the short and medium run. For the long run, most authors stick to the old purchasing-power-parity theory whose empirical validation is just as weak. Nonetheless the textbooks reviewed here only present exchange-rate theories that have little empirical support. Yet they differ considerably, even though they remain within the leading theoretical paradigm.

Suggested Citation

  • Jan Priewe, 2017. "Review of exchange-rate theories in four leading economics textbooks," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 14(1), pages 32-47, April.
    • Handle: RePEc:elg:ejeepi:v:14:y:2017:i:1:p32-47
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    Citations

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    Cited by:

    1. Williams Ohemeng & Elvis Kwame Agyapong & Kenneth Ofori-Boateng, 2021. "Exchange rate and inflation dynamics: does the month or quarter of the year matter?," SN Business & Economics, Springer, vol. 1(6), pages 1-24, June.
    2. Dennij Mandeij, 2020. "Determination of Equilibrium Exchange Rate Rupiah Against US Dollar and its Volatility: Application of Asset Approach," International Journal of Business and Administrative Studies, Professor Dr. Bahaudin G. Mujtaba, vol. 6(6), pages 323-336.

    More about this item

    Keywords

    teaching economics; open-economy macroeconomics; exchange-rate theory;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • A23 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Graduate
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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