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A Monetary Approach To The Exchange Rate: Doctrinal Aspects And Empirical Evidence

In: Flexible Exchange Rates and Stabilization Policy

Author

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  • Jacob A. Frenkel

    (University of Chicago
    Tel-Aviv University)

Abstract

This paper deals with the determinants of the exchange rate and develops a monetary view (or more generally, an asset view) of exchange rate determination. The first part traces some of the doctrinal origins of approaches to the analysis of equilibrium exchange rates. The second part examines some of the empirical hypotheses of the monetary approach as well as some features of the efficiency of the foreign exchange markets. Special emphasis is given to the role of expectations in exchange rate determination and a direct observable measure of expectations is proposed. The direct measure of expectations builds on the information that is contained in data from the forward market for foreign exchange. The empirical results are shown to be consistent with the hypotheses of the monetary approach.

Suggested Citation

  • Jacob A. Frenkel, 1977. "A Monetary Approach To The Exchange Rate: Doctrinal Aspects And Empirical Evidence," Palgrave Macmillan Books, in: Jan Herin & Assar Lindbeck & Johan Myhrman (ed.), Flexible Exchange Rates and Stabilization Policy, pages 68-92, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-03359-1_7
    DOI: 10.1007/978-1-349-03359-1_7
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    Cited by:

    1. Joshua Aizenman, 1984. "Testing Deviations From Purchasing Power Parity (PPP)," NBER Working Papers 1475, National Bureau of Economic Research, Inc.
    2. Behrooz Gharleghi, 2023. "Debt and currency value during COVID‐19 in the Global South," Economic Affairs, Wiley Blackwell, vol. 43(2), pages 201-210, June.

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