The Economics of Exchange Rates

Reviews the literature on exchange rate economics over the last two decades, with particular reference to recent developments. Topics surveyed include the evidence on foreign exchange market efficiency and forward discount bias, chewed interest parity and purchasing power parity, the theory and evidence relating to the determination of exchange rates (the flexible-price monetary model, the stickyprice monetary model, the equilibrium models and the portfolio balance model), recent work on the effectiveness of foreign exchange intervention, and the recent literature on exchange rate behavior within target zones. The emerging literature on foreign exchange market microstructure is also briefly discussed.

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