On the volatility of exchange rates: Tests of monetary and portfolio balance models of exchange rate determination

1989 ◽  
Vol 125 (2) ◽  
pp. 273-295 ◽  
Author(s):  
Daniel Gros
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Exchange Rate Determination ◽  
Portfolio Balance

An Expanded Graphical Representation of the Portfolio Balance Model of Exchange Rate Determination

1994 ◽  
Vol 38 (2) ◽  
pp. 52-57 ◽  
Author(s):  
Joachim Zietz
Keyword(s):  
Exchange Rate ◽  
Graphical Representation ◽  
Balance Model ◽  
Exchange Rate Determination ◽  
Portfolio Balance ◽  
Foreign Bonds ◽  
Diagram Representation

The traditional one-diagram representation of the portfolio balance model gets high marks for conciseness and efficiency but falls short in providing an intuitive understanding of the forces that drive the model. This paper offers an expanded graphical representation of the model. It features a diagram for each of the three assets considered by the portfolio balance model, domestic bonds, foreign bonds, and domestic money. The purpose is to make the economic adjustments that are taking place in the model's markets more intuitively obvious.

scholarly journals Exchange rate determination and the flaws of mainstream monetary theory

2018 ◽  
Vol 38 (1) ◽  
pp. 99-114
Author(s):  
HEINER FLASSBECK
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Financial Markets ◽  
Exchange Rates ◽  
Monetary Theory ◽  
International Financial Markets ◽  
External Shocks ◽  
Exchange Rate Determination ◽  
Equilibrium Level ◽  
The Exchange Rate

ABSTRACT Developing countries in general need flexibility and a sufficient number of instruments to prevent excessive volatility. Evidence does not support the orthodox belief that, with free floating, international financial markets will perform that role by smoothly adjusting exchange rates to their “equilibrium” level. In reality, exchange rates under a floating regime have proved to be highly unstable, leading to long spells of misalignment. The experience with hard pegs has not been satisfactory either: the exchange rate could not be corrected in cases of external shocks or misalignment. Given this experience, “intermediate” regimes are preferable when there is instability in international financial markets.

scholarly journals The exchange rate in Orthodox, Keynesian and New Developmentalism theoretical models: a literature review

2021 ◽  
Vol 41 (2) ◽  
pp. 220-235
Author(s):  
WILLIAM CAPRIATA ◽  
LEONARDO FLAUZINO DE SOUZA
Keyword(s):  
Exchange Rate ◽  
Literature Review ◽  
Exchange Rates ◽  
Theoretical Models ◽  
Balance Of Payments ◽  
Exchange Rate Determination ◽  
Macroeconomic Models ◽  
The Exchange Rate

ABSTRACT The main purpose of this paper is to present the differences in the exchange rates in macroeconomic models from the three current theoretical views: Orthodox, Post-Keynesian and New Developmentalism. To achieve this objective, it is proposed to make a bibliographic survey of the literature on open macroeconomics and exchange rate. The main differences among these views concerns to exchange rate determination, causes of exchange rate variations and balance of payments equilibrium determination.

scholarly journals Exchange Rate Determination: The Portfolio-Balance Approach

2020 ◽  
pp. 19-40
Author(s):  
Ioannis N. Kallianiotis
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Jel Classification ◽  
Exchange Rate Determination ◽  
Portfolio Balance ◽  
Balance Approach ◽  
The Exchange Rate ◽  
Foreign Bonds

The portfolio-balance approach to exchange rate determination is part of the Asset Market Models and is largely attributed to economists after 1973 when the exchange rate became flexible (market determined). This article first introduces the setting of the model embedded in the portfolio balance approach that encompasses two assets (money and bonds), which deviates a little from the models and approaches used for the monetary approach to the balance of payment, the overshooting model, and from the associated market equilibria. The effects of monetary policy, of current account, and of wealth under the portfolio-balance approach are examined, here, theoretically and empirically. The current econometric results show that the exchange rate is determined by the foreign bonds, the domestic interest rate, and the foreign interest rate. JEL classification numbers: F31, F47, E52, E41, C52, E21, E43. Keywords: Foreign Exchange, Forecasting and Simulation, Monetary Policy, Demand for Money, Model Evaluation and Testing, Consumption and Saving, Interest Rates.

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