Exchange Rate Volatility and Misalignment: Evaluating Some Proposals for Reform / Jacob A. Frenkel, Morris Goldstein.

Format:

Book

Author/Creator:

Frenkel, Jacob A.

Contributor:

National Bureau of Economic Research.

Goldstein, Morris.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2894.

NBER working paper series no. w2894

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Exchange Rate Volatility and Misalignment

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1989.

Summary:

In this paper, we analyze several proposals for reducing the volatility and/or misalignment of key-currency exchange rates. The proposals examined are a system of target zones, the imposition of controls or taxes on international capital flows, and a strengthening of international coordination over economic policies. We also review key characteristics of the behavior of major-currency exchange rates over the period of floating rates and examine the various criteria or standards for drawing inferences about excess volatility and misalignment. In evaluating exchange rate volatility, attention is directed toward the influence of the exchange rate regime, to the behavior of fundamentals, to the volatility of both goods prices and other asset prices, to the costs of exchange rate volatility, and to the nature of shocks facing the economy. Turning to misalignment, we examine the strengths and weaknesses of the purchasing-power-parity approach, of the underlying balance approach, and of the sustainability approach. We argue that inferences about excess exchange rate volatility and misalignment are subject to wide margins of error and that the exchange rate experience of the past 15 years is subject to multiple interpretations.

Notes:

Print version record

March 1989.