Transcription of Exchange Rate Theories - UTA
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Exchange Rate Theories - UTA
451 TOPICS TO BE COVEREDThe Asset ApproachSterilizationExchange rates and the Trade BalanceOvershooting Exchange RatesCurrency SubstitutionThe Role of NewsForeign Exchange Market MicrostructureKEY WORDSP erfect capital mobilityPortfolio-balance approachSterilized interventionCurrency unionCHAPTER 18 Exchange 10/18/00 3:15 PM Page 451452 Chapter 18 Exchange Rate TheoriesTABLE Deviations of Prices and Exchange Rates1 CountryPriceExchange table reports the standard deviations of the percentage changes in the consumer price index and the spotexchange rate of each country s currency against the dollar for the period March 1990 to March to the monetary-approach emphasis of the 1970s, it was common toemphasize international trade flows as primary determinants of exchangerates. This was due, in part, to the fact that governments maintained tightrestrictions on international flows of financial capital. The role of Exchange ratechanges in eliminating international trade imbalances suggests that we should expectcountries with current trade surpluses to have an appreciating currency, whereascountries with trade deficits should have depreciating currencies.
452 Chapter 18 — Exchange Rate Theories TABLE 18.1 Standard Deviations of Prices and Exchange Rates1 Country Price Exchange Rate Canada .003 .013 Switzerland .003 .038 1The table reports the standard deviations of the percentage changes in the consumer price index and the spot exchange rate of each country’s currency against the U.S. dollar for the period March 1990 to March 1999.
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