The Theory of Flexible Exchange Rate Regimes and Macroeconomic Policy

Deskripsi

This paper develops three perspectives on the determination of exchange rates and their interaction with macroeconomic equilibrium and aggregate policies. A longrun view characterizes exchange rate determination in terms of monetary and real factors where the real aspects include an explicit consideration of relative price structures. A short-run or "liquidity" view of the exchange rate emphasizes the role of asset market equilibrium and expectations. A policy view, finally, analyses the effectiveness of aggregate policies and points out that in the short-run nominal disturbances will tend to be transmitted internationally. The paper concludes with an analysis of dual exchange rate systems as a stabilizing policy in the presence of speculative disturbances.