Modern Problems of Exchange Rate Theory

The increased volatility of exchange rates entails their sustained deviations from purchasing power parities (PPP). The modern econometric methods confirm the long-term relation between exchange rates and PPPs in the developed countries. But this relation is absent in a large group of the developing countries. The specific features of exchange rates formation in these countries are connected with their external indebtedness. The necessity of paying of external debts results in conducting the policy of exports stimulation by exchange rate decreasing. This policy entails an imbalance of demand and supply on the internal market and accelerates inflation. The external debt is nowadays a factor of exchange rates formation. The periodic falls of exchange rates coincide with the growth of indebtedness to foreign creditors. The connection of exchange rate dynamics with external debt is a characteristic feature of the modern Russian economy.