TY  - JOUR
AU  - Frenkel,Jacob A.
AU  - Goldstein,Morris
TI  - Exchange Rate Volatility and Misalignment:  Evaluating Some Proposals   for Reform
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2894
PY  - 1989
Y2  - August 1989
UR  - http://www.nber.org/papers/w2894
L1  - http://www.nber.org/papers/w2894.pdf
N1  - Author contact info:
Jacob Frenkel
Dr. Jacob A. Frenkel
Chairman, JPMorgan Chase International
270 Park Ave 46th floor
New York, NY 10017
Tel: +1 212 270 2393
Fax: +1 212 270 2397
E-Mail: jacob.frenkel@jpmchase.com

Morris Goldstein
Institute for International Economics
1750 Massachusetts Avenue, NW
Washington, DC  20036-1903
E-Mail: mgoldstein@iie.com
AB  - 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.
ER  -