Dennis L. Hoffman, Don E. Schlagenhauf, An Econometric Investigation of the Monetary Neutrality and Rationality Propositions from an International Perspective, The Review of Economics and Statistics, Vol. 64, No. 4 (Nov., 1982), pp. 562-571

Dennis L. Hoffman and, Don E. Schlagenhauf, Real Interest Rates, Anticipated Inflation, and Unanticipated Money: A Multi-Country Study, The Review of Economics and Statistics, Vol. 67, No. 2 (May, 1985), pp. 284-296

This paper presents and estimates a simple model of real exchange rate determination that includes the expected future U.S. federal budget deficit as a determinant. The model is applied to the real value of the dollar versus the mark, yen, and pound over the period June 1974-October 1987. The estimates suggest that rapid increases in the expected future deficit in the early 1980s contributed to a rapid appreciation of the dollar. The fall in the value of the dollar in the spring of 1985 appears to be due to a fall in the expected budget deficit. Copyright 1989 by MIT Press.