NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Equilibrium and Disequilibrium Exchange Rates

Rudiger Dornbusch

NBER Working Paper No. 983 (Also Reprint No. r0388)
Issued in September 1982
NBER Program(s):   ITI   IFM

The paper reviews theoretical developments in the field of exchange rate theory and assesses the empirical evidence. Since the empirical evidence does not lend support to the models that have been formulated, a number of reasons for that failure are suggested. These include the argument that the current account has been overrated as an exchange rate determinant and that the role of "news" as yet remains to be tested in an extensive way. Four exchange rate problems are identified as possibly giving justification to exchange market intervention or other policies. They are the possibility of speculative bubbles, the peso problem, the use of irrelevant information and the problem of real appreciation in the case of monetarist stabilization. In each case the exchange rate can deviate from fundamentals, following the asset market rather than the goods market and thus disturbing macroeconomic equilibrium.

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Document Object Identifier (DOI): 10.3386/w0983

Published: Dornbusch, Rudiger. "Equilibrium and Disequilibrium Exchange Rates." Zeitschrift fur Wirtschaftsund Sozialwissenschaften, Vol. 102, No. 6, (1982) pp. 573-599.

 
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