Home » Deviations of Exchange Rates from Purchasing Power Parity - A Story Featuring Two Monetary Unions by Tamim Bayoumi
Deviations of Exchange Rates from Purchasing Power Parity - A Story Featuring Two Monetary Unions Tamim Bayoumi

Deviations of Exchange Rates from Purchasing Power Parity - A Story Featuring Two Monetary Unions

Tamim Bayoumi

Published May 1st 1998
ISBN : 9786613871497
ebook
18 pages
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 About the Book 

The proposition that exchange rates are volatile when allowed to float freely has become something of a stylized fact in the international finance literature (see, for example, Frenkel and Mussa (1980), MacDonald and Taylor (1992) and Frankel andMoreThe proposition that exchange rates are volatile when allowed to float freely has become something of a stylized fact in the international finance literature (see, for example, Frenkel and Mussa (1980), MacDonald and Taylor (1992) and Frankel and Rose (1995)). Indeed, the volatility of exchange rates during the recent floating experience has led economists to advocate moving from an international monetary regime based on flexible exchange rates towards one based on greater exchange rate fixity (McKinnon (1988), Mundell (1992) and Williamson (1994)) and is also one of the central arguments made by proponents of greater monetary integration in Europe. The volatility of nominal exchange rates has also had implications for the behavior of real exchange rates. In particular, because prices in goods markets are generally regarded as being sticky (certainly in the short run), volatility in nominal exchange rates is transferred into comparable real exchange rates. This violation of PPP may be viewed as a second stylized fact in international finance.