A MONETARY APPROACH TO THE EXCHANGE RATE: DOCTRINAL ASPECTS AND EMPIRICAL EVIDENCE
University of Chicago, Illinois,USA and Tel-Aviv University, Tel-Aviv, Israel
What, then, has determined and will determine the value of the Franc? First, the quantity, present and prospective, of the francs in circulation. Second, the amount of purchasing power which it suits the public to hold in that shape.Keynes (Introduction to French edition, 1924, xviii).
This paper deals with the determinants of the exchange rate and develops a monetary view (or more generally, an asset view) of exchange rate determination. The first part traces some of the doctrinal origins of approaches to the analysis of equilibrium exchange rates. ...