Introduction: Equilibrium Exchange Rates

  • Ronald MacDonald
  • Jerome L. Stein
Part of the Recent Economic Thought Series book series (RETH, volume 69)


The papers in this volume are directed towards answering the following types of questions: How successful is PPP, and its extension in the monetary model, as a measure of the equilibrium exchange rate? What are the determinants and dynamics of equilibrium real exchange rates? How can misalignments be measured, and what are their causes? What are the effects of specific policies upon the equilibrium exchange rate? The answers to these questions are important to academic theorists, policymakers — such as the International Monetary Fund, governments, Central Banks — and to international bankers and investment fund managers. One of the attractive features of this collection of papers is that they encompass all of the competing views of equilibrium exchange rate determination, from PPP, to other reduced form models, through to the macroeconomic balance approach.


Exchange Rate Current Account Real Exchange Rate Purchasing Power Parity Nominal Exchange Rate 
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  1. 1.
    Peter Clark, Leonardo Bartolini, Tamim Bayoumi and Steven Symansky, “Exchange Rates and Economic Fundamentals”, International Monetary Fund, Occasional Paper 115, Washington, DC, December 1994. See also Peter Isard and Hamid Faruqee, “Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach”, International Monetary Fund, Occasional Paper 167, Washington, DC, 1998.Google Scholar
  2. 2.
    John Williamson “Introduction” in John Williamson, Estimating Equilibrium Exchange Rates, Institute for International Economics, Washington DC, 1994.Google Scholar
  3. 3.
    The stability of the Euro is an important determinant of whether it will become an international money. See Henri Bourguinat, L’Economie morale, Arléa, Paris, 1998, ch.V.Google Scholar
  4. 6.
    In this well known formulation — based upon PPP, uncovered interest rate parity with rational expectations and the demand for money — velocity is endogenous, resulting from endogenous differential rates of interest. See Jerome L. Stein and Giovanna Paladino” Recent Developments in International Finance: A Guide to Research”, Jour. Banking and Finance, Anniversary Issue, vol. 21, 11–12 (1997: 1692).Google Scholar
  5. 10.
    The rejection of the monetary theories of the exchange rate is confirmed by the evaluation in Stein, Allen et al. Fundamental Determinants of Exchange Rates, Oxford University Press, 1997 ed.Google Scholar
  6. 11.
    Deutsche Bundesbank, (1995) Overall Determinants of the trends in the real external value the Deutsche Mark, Monthly Report, August. See Stein (chapter 6) in Stein, Allen et al (1997) for a detailed analysis of the Balassa-Samuelson hypothesis in explaining the real exchange rate of Germany.Google Scholar

Copyright information

© Springer Science+Business Media New York 1999

Authors and Affiliations

  • Ronald MacDonald
  • Jerome L. Stein

There are no affiliations available

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