TY  - JOUR
AB  - This paper examines and dissects eight popular conjectures about exchange rates. The conjectures are: there exists a systematic linkage between economic fundamentals and exchange rates; flexible exchange rates are unstable due to destabilising speculation; flexible exchange rates are excessively volatile; the foreign exchange market is efficient; purchasing power parity holds; volatile exchange rates are harmful to trade; depreciating exchange rates trigger a “vicious” inflationary circle; and countries with current account deficits have depreciating exchange rates. The main message is that there is weak theoretical and empirical support for the majority of the conjectures. Only one proposition, relative PPP has strong empirical support but its policy relevance is weakened by the difficulty of interpreting departures from PPP. The remaining group for which there is inconclusive support presents the greatest challenge to research and policy as it includes the first conjecture.
VL  - 31
IS  - 6
SN  - 0144-3585
DO  - 10.1108/01443580410569262
UR  - https://doi.org/10.1108/01443580410569262
AU  - Horne Jocelyn
PY  - 2004
Y1  - 2004/01/01
TI  - Eight conjectures about exchange rates
T2  - Journal of Economic Studies
PB  - Emerald Group Publishing Limited
SP  - 524
EP  - 548
Y2  - 2024/04/23
ER  -