Fundamental Determinants of Exchange Rates

This monograph presents an original contribution to a topic of continuing interest. Existing models fail to explain the large fluctuations in the real exchange rates of most currencies over the past twenty years. The Natural Real Exchange Rate model (NATREX) taken in this book explains the medium- to longer-term evolution of the real exchange rate and current account in terms of economic fundamentals: productivity of capital and social thrift at home and abroad. The approach grew out of agreement that existing models have been disappointing. NATREX comprises a family of growth models which can be tailored to differently sized economies. In this book, the authors apply it to the USA, the G10 countries, Australia, Latin America, France and Germany.