An Equilibrium Theory of Nominal Exchange Rates

This article examined convergence of inflation and exchange rates in six (6) West African countries that make up the West African Monetary Zone (WAMZ). A non-parametric rank and score test was employed in the analysis. The results show that inflation and nominal exchange rates of Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone are converging. The findings have practical implications.

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A General Equilibrium Theory of Exchange Rates and Managed Floating

Currency Substitution ◽

10.1007/978-94-009-3261-6_2 ◽

1987 ◽

pp. 13-62

Author(s):

Victor A. Canto ◽

Gerald Nickelsburg

Keyword(s):

General Equilibrium ◽

Exchange Rates ◽

Equilibrium Theory ◽

General Equilibrium Theory ◽

Managed Floating

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Nonlinear Adjustment, Purchasing Power Parity and the Role of Nominal Exchange Rates and Prices

SSRN Electronic Journal ◽

10.2139/ssrn.1898096 ◽

2011 ◽

Author(s):

Joscha Beckmann

Keyword(s):

Exchange Rates ◽

Purchasing Power Parity ◽

Purchasing Power ◽

Power Parity ◽

Nonlinear Adjustment ◽

Nominal Exchange Rates

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Monetary Policy and the Predictability of Nominal Exchange Rates

The Review of Economic Studies ◽

10.1093/restud/rdaa024 ◽

2020 ◽

Author(s):

M S Eichenbaum ◽

B K Johannsen ◽

S T Rebelo

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Exchange Rates ◽

Real Exchange Rate ◽

Open Economy ◽

Real Exchange Rates ◽

Nominal Exchange Rate ◽

Medium Size ◽

Inflation Rates ◽

Nominal Exchange Rates

Abstract This article studies how the monetary policy regime affects the relative importance of nominal exchange rates and inflation rates in shaping the response of real exchange rates to shocks. We document two facts about inflation-targeting countries. First, the current real exchange rate predicts future changes in the nominal exchange rate. Second, the real exchange rate is a poor predictor of future inflation rates. We estimate a medium-size, open-economy DSGE model that accounts quantitatively for these facts as well as other empirical properties of real and nominal exchange rates. The key estimated shocks that drive the dynamics of exchange rates and their covariance with inflation are disturbances to the foreign demand for dollar-denominated bonds.

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