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Equilibrium exchange rate theories under flexible exchange rate regimes

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  • Canale, Rosaria Rita

Abstract

Economic theory refers to several notions of the exchange rate equilibrium value in a flexible exchange rate regime. It has been defined as that consistent with : a) the equilibrium of trade balance; b)the equilibrium of current account; c) the overall equilibrium of the balance of payments; d) the absence of speculative attacks on foreign exchange markets; e) the absence of a beggar thy neighbour” dispute at an international level; f) the achievement of price stability; g) the pursuit of a monetary policy rule. Through a literature survey we have seen that different exchange rates have effects on output and employment both in the short and in the long run. However the major conclusion was reached by an extension of recent studies, according to which, even if the central bank strictly controls the inflation rate, the absence of a precise objective in terms of price level makes the exchange rate indeterminate.

Suggested Citation

  • Canale, Rosaria Rita, 2002. "Equilibrium exchange rate theories under flexible exchange rate regimes," MPRA Paper 3086, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:3086
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    References listed on IDEAS

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    More about this item

    Keywords

    exchange rate; equilibrium; real misalignment;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F0 - International Economics - - General

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