Exchange rates and fundamentals
By: Charles Engel, Kenneth D. West.
Contributors: West, Kenneth D.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10723; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10723.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Foreign exchange rates.
Description: "We show analytically that in a rational expectations present value model, an asset price manifests near random walk behavior if fundamentals are I(1) and the factor for discounting future fundamentals is near one.  We argue that this result helps explain the well known puzzle that fundamental variables such as relative money supplies, outputs, inflation and interest rates provide little help in predicting changes in floating exchange rates.  As well, we show that the data do exhibit a related link suggested by standard models - that the exchange rate helps predict these fundamentals.  The implication is that exchange rates and fundamentals are linked in a way that is broadly consistent with asset pricing models of the exchange rate"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 1/10/2005.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.