NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Model of Foreign Exchange Rate Indetermination

Charles Engel

NBER Working Paper No. 5766
Issued in September 1996
NBER Program(s):   IFM

Economic agents undertake actions to protect themselves from the short-run impact of foreign exchange rate fluctuations: Nominal goods prices are set in consumers' currencies, and firms hedge foreign exchange risk. A model is presented here which shows that these features of the economy can lead to indeterminacy in the nominal exchange rate in the short run. There can be noise in the exchange rate, unrelated to any fundamentals, essentially because the short-run fluctuations do not influence any rational agent's behavior. Empirical implications of this sort of noise are explored.

download in pdf format
   (856 K)

email paper

This paper is available as PDF (856 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5766

Users who downloaded this paper also downloaded these:
Engel and West w10723 Exchange Rates and Fundamentals
Hansen and Hodrick Risk Averse Speculation in the Forward Foreign Exchange Market: An Econometric Analysis of Linear Models
Engel, Mark, and West w13318 Exchange Rate Models Are Not as Bad as You Think
Gruber w15766 The Tax Exclusion for Employer-Sponsored Health Insurance
Krugman w1926 Pricing to Market when the Exchange Rate Changes
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us