Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If you need an accessible version of this item please contact JSTOR User Support

Expectations and Exchange Rate Dynamics

Rudiger Dornbusch
Journal of Political Economy
Vol. 84, No. 6 (Dec., 1976), pp. 1161-1176
Stable URL: http://www.jstor.org/stable/1831272
Page Count: 16
  • Read Online (Free)
  • Download ($14.00)
  • Subscribe ($19.50)
  • Cite this Item
If you need an accessible version of this item please contact JSTOR User Support
Expectations and Exchange Rate Dynamics
Preview not available

Abstract

The paper develops a theory of exchange rate movements under perfect capital mobility, a slow adjustment of goods markets relative to asset markets, and consistent expectations. The perfect foresight path is derived and it is shown that along that along that path a monetary expansion causes the exchange rate to depreciate. An initial overshooting of exchange rates is shown to derive from differential adjustment speed of markets. The magnitude and persistence of the overshooting is developed in terms of the structural parameters of the model. To the extent that output responds to a monetary expansion in the short run, this acts a a dampening effect on exchange depreciation and may, in fact, lead to an increase in interest rates.

Page Thumbnails

  • Thumbnail: Page 
1161
    1161
  • Thumbnail: Page 
1162
    1162
  • Thumbnail: Page 
1163
    1163
  • Thumbnail: Page 
1164
    1164
  • Thumbnail: Page 
1165
    1165
  • Thumbnail: Page 
1166
    1166
  • Thumbnail: Page 
1167
    1167
  • Thumbnail: Page 
1168
    1168
  • Thumbnail: Page 
1169
    1169
  • Thumbnail: Page 
1170
    1170
  • Thumbnail: Page 
1171
    1171
  • Thumbnail: Page 
1172
    1172
  • Thumbnail: Page 
1173
    1173
  • Thumbnail: Page 
1174
    1174
  • Thumbnail: Page 
1175
    1175
  • Thumbnail: Page 
1176
    1176