The New Palgrave Dictionary of Economics

Living Edition
| Editors: Palgrave Macmillan

Exchange Rate Dynamics

  • Nelson C. Mark
Living reference work entry


Exchange-rate dynamics refers to the response path of the exchange rate following the revelation of some economic shock when the country in question operates under a pure flexible exchange-rate system. The issue attracts research attention because of the volatile nature of the exchange rate and the belief that the exchange rate may affect the allocation of resources across countries and over time. If observed exchange-rate dynamics cannot be shown to have a rational basis, efficiency will suffer from decisions made conditioned on disequilibrium values of the exchange rate.


Bretton Woods system Dornbusch, R. Exchange rate overshooting Exchange rate volatility Exchange-rate dynamics Fixed exchange rates Flexible exchange rates Incomplete markets Local-currency pricing Monetary shocks Mundell–Fleming model New open-economy macroeconomics Producer-currency pricing Real exchange rates Redux model Risk aversion Sticky prices Uncertainty Uncovered interest parity Vector autoregressions 

JEL Classifications

F31 F4 
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Copyright information

© The Author(s) 2008

Authors and Affiliations

  • Nelson C. Mark
    • 1
  1. 1.