Rational expectations, market shocks, and the exchange rate
The world economy has been subjected to numerous real shocks in recent years. In addition, purchasing-power parity seems to have collapsed. Critics of the monetary approach to the exchange rate have been quick to draw attention to these facts. This paper extends the basic framework of the monetary approach so that it provides a useful tool for explaining the impact of real shocks on the exchange rate and so that it is compatible with the existence of significant deviations from purchasing-power parity. The real shocks that are discussed include changes in commercial policy, the terms of trade, and productivity. It is demonstrated that real shocks influence the exchange rate through two distinct channels-a real-income channel and a deviations from purchasing-power-parity channel. © 1986.
Duke Scholars
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Related Subject Headings
- Economics
- 3803 Economic theory
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1402 Applied Economics
- 1401 Economic Theory
Citation
Published In
DOI
ISSN
Publication Date
Volume
Issue
Start / End Page
Related Subject Headings
- Economics
- 3803 Economic theory
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1402 Applied Economics
- 1401 Economic Theory