Journal of Political Economy Vol. 88 No. 4 1980
A Theory of Exchange Rate Determination
Abstract
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.
- Volume
- 88
- Issue
- 4
- Pages
- 673-698
- Sources
- bibtex:phds-export.bib