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The Economics of Exchange Rates (Collected Works of Harry Johnson) by Harry G. Johnson, Jacob A. Frenkel

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CHAPTER 7

EXCHANGE RESTRICTIONS AND THE MONETARY APPROACH TO THE EXCHANGE RATE

MARIO I. BLEJER

Hebrew University of Jerusalem and Boston University

I. INTRODUCTION

The importance of monetary variables in the determination of the exchange rate in a regime of floating rates has recently been the object of careful theoretical and empirical studies, some of which are collected in this volume.1 Many of these studies, however, have been carried out under the stated or the implicit assumption that restrictions to the international movement of capital are not present and, therefore, that market forces are the overwhelming determinants of the exchange rate. This paper presents an extension to the monetary approach to the exchange rate that analyzes the ...

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