Summary
In order to distinguish the more fundamental determinants of the exchange rate, a static model for the balance of payments is constructed. From this theoretical exercise it follows that the exchange rate is determined by three kinds of phenomena: first, real phenomena such as exploitation of natural resources and the relative level of economic activity; second, nominal phenomena such as relative prices; and finally, monetary phenomena such as interest rate differentials, exchange rate expectations and official intervention.
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De Ridder, P.B. Exchange rate determination and the balance of payments, a theoretical framework. De Economist 129, 373–381 (1981). https://doi.org/10.1007/BF01371747
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DOI: https://doi.org/10.1007/BF01371747