Fundamental Determinants of Exchange Rates by Jerome L. SteinFundamental Determinants of Exchange Rates by Jerome L. Stein

Fundamental Determinants of Exchange Rates

byJerome L. Stein, Polly Reynolds Allen

Paperback | April 1, 1998

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Existing models fail to explain the large fluctuations in the real exchange rates of most currencies over the past twenty years. The Natural Real Exchange Rate approach (NATREX) taken here offers an alternative paradigm to those which focus on short-run movements of nominal eschange rates,purchasing power parity of the representative agent intertemporal optimization models. Yet it is also neo-classical in its stress upon the accepted fundamentals driving a real economy. It concentrates on the real exchange rate, and explains medium- tolong-run movements in equilibrium real exchangerates in terms of fundamental variables: the productivity of capital and social (public plus private) thrift at home and abroad. The NATREX approach is a family of growth models, each tailored to the characteristics of the countries considered. The authors explain the real international value of theUS dollar relativ to the G10 countries, and the US current account. These are two large economies. The model is also applied to small economies, where it explains the real value of the Australian dollar and the Latin American currencies relative to the US dollar. The model is relevant for developingcountries where the foreign debt is a concern. Finally, it is applied to two medium-sized economies to explain the bilateral exchange rate between the French franc and the Deutsche Mark. The authors demonstrate both the promise of the NATREX model and its applicability to economies large and small. Alongside the analysis, econometrics, and technical details of these case studies, the introductory chapter explains in accessible terms the rationale behind the approach. The mix oftheory and empirical evidence makes this book relevant to academics and advanced graduate students, and to central banks, ministries of finance, and those concerned with the foreign debt of developing countries.
Jerome L. Stein is at Brown University. Polly Reynolds Allen is at University of Connecticut.
Title:Fundamental Determinants of Exchange RatesFormat:PaperbackDimensions:272 pages, 8.5 × 5.43 × 0.63 inPublished:April 1, 1998Publisher:Oxford University Press

The following ISBNs are associated with this title:

ISBN - 10:0198293062

ISBN - 13:9780198293064


Table of Contents

1. Allen: The Economic and Policy Implications of the Natural Real Exchange Rate (NATREX) Models2. Stein: The Natural Real Exchange Rate of the United States Dollar, and Determinants of Capital Flows3. Lim and Stein: The Dynamics of the Real Exchange Rate and Foreign Debt in a Small Open Economy: The Case of Australia4. Crouhy-Veyrac and Saint Marc: The Natural Real Exchange Rate between the French Franc and the Deutsche Mark: Implications for Monetary Union5. Connolly and Devereux: The Equilibrium Real Exchange Rate: Theory and Evidence for Latin AmericaStein: Appendix: International Finance Theory and Empirical Reality