TY  - JOUR
AU  - Engel,Charles
TI  - A Model of Foreign Exchange Rate Indetermination
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5766
PY  - 1996
Y2  - September 1996
UR  - http://www.nber.org/papers/w5766
L1  - http://www.nber.org/papers/w5766.pdf
N1  - Author contact info:
Charles Engel
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706-1393
Tel: 608/262-3697
Fax: 608/262-2033
E-Mail: cengel@ssc.wisc.edu
AB  - 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.
ER  -