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The Role of Exchange Rates. A Reconciliation of Alternative Approaches
Credit and Capital Markets – Kredit und Kapital, Vol. 15 (1982), Iss. 4 : pp. 556–565
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Fausten, Dietrich K.
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Abstract
The Role of Exchange Rates: A Reconciliation of Alternative Views
The contradistinction between alternative views of the exchange rate as the relative price of national outputs, determined in commodity markets, and as the relative price of national monies, determined in asset markets, is critically examined. In a correctly specified stock adjustment model nominal exchange rates are influenced by both real and monetary disturbances. Consequently, any suggestion that these views constitute mutually exclusive alternatives must be rejected. On the other hand, the differential adjustment speeds in asset and commodity markets suggest the predominance of asset market considerations for the short-run determination of exchange rate behaviour.