Abstract
This paper presents a model for appraising currencies that is based on an operational variant of purchasing power parity doctrine. The behavior of currencies under different exchange regimes—floating rates, strictly managed rates, crawling peg rates, and fixed exchange rates—is analyzed in detail. The results support this doctrine, provided the parity exchange rate is derived from an interrelationship of differentials in inflation rates and changes in exchange rates of trading partners, both appropriately weighted by trade shares. A discussion of forecasting implications concludes the paper.
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*Robert M. Everett is Manager of Finance of General Electric, Venezuela. He holds an A.B. in Economics from Tufts University.
**Abraham M. George is President of Multinational Computer Models, Inc., Montclair, NJ, an international financial consulting firm. He holds a Ph.D. in Business Administration from New York University.
***Aryeh Blumberg is Professor of Finance at Montclair State College, NJ. He holds a Ph.D. in Economics from the University of Chicago.
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Everett, R., George, A. & Blumberg, A. Appraising Currency Strengths and Weaknesses: An Operational Model for Calculating Parity Exchange Rates. J Int Bus Stud 11, 80–90 (1980). https://doi.org/10.1057/palgrave.jibs.8490606
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DOI: https://doi.org/10.1057/palgrave.jibs.8490606