A Theory of Exchange Rate Determination

This paper develops an equilibrium model of the determination of exchange rates and prices of goods. Changes in relative prices of goods, due to supply or demand shifts, induce changes in exchange rates and deviations from purchasing power parity. These changes may create a correlation between the e...

Full description

Saved in:
Bibliographic Details
Published in:The Journal of political economy 1980-08, Vol.88 (4), p.673-698
Main Author: Stockman, Alan C.
Format: Article
Language:English
Subjects:
Changes
Economic models
Exchange rates
Foreign exchange
Foreign exchange markets
Foreign exchange rates
International trade
Money
Money demand
Optimization
Parity
Political economy
Price indexes
Price levels
Purchasing power
Purchasing power parity
Relative prices
State vectors
Terms of trade
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper develops an equilibrium model of the determination of exchange rates and prices of goods. Changes in relative prices of goods, due to supply or demand shifts, induce changes in exchange rates and deviations from purchasing power parity. These changes may create a correlation between the exchange rate and the terms of trade, but this correlation cannot be exploited by the government to affect the terms of trade by foreign exchange market operations.
ISSN:0022-3808
1537-534X
DOI:10.1086/260897