Eight conjectures about exchange rates

Jocelyn Horne*

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

17 Citations (Scopus)

Abstract

This paper examines and dissects eight popular conjectures about exchange rates. The conjectures are: there exists a systematic linkage between economic fundamentals and exchange rates; flexible exchange rates are unstable due to destabilising speculation; flexible exchange rates are excessively volatile; the foreign exchange market is efficient; purchasing power parity holds; volatile exchange rates are harmful to trade; depreciating exchange rates trigger a "vicious" inflationary circle; and countries with current account deficits have depreciating exchange rates. The main message is that there is weak theoretical and empirical support for the majority of the conjectures. Only one proposition, relative PPP has strong empirical support but its policy relevance is weakened by the difficulty of interpreting departures from PPP. The remaining group for which there is inconclusive support presents the greatest challenge to research and policy as it includes the first conjecture.

Original languageEnglish
Pages (from-to)524-548
Number of pages25
JournalJournal of Economic Studies
Volume31
Issue number6
DOIs
Publication statusPublished - 2004

Keywords

  • Economic reform
  • Exchange rates
  • International economics
  • Monetary policy

Fingerprint Dive into the research topics of 'Eight conjectures about exchange rates'. Together they form a unique fingerprint.

Cite this