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Article: Long-term exchange rate movements: the role of the fundamentals in neoclassical models of exchange rates.
- Article from:
- Journal of Economic Issues
- Article date:
- June 1, 1996
- Author:
CopyrightCOPYRIGHT 1996 Association for Evolutionary Economics. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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The central theme of the neoclassical approach to exchange rates has been that currency prices are determined by the "fundamentals," or those variables that guarantee the efficient operation of the foreign exchange market. This has remained the core concept despite its dismal empirical record. In fact, the only significant shift that failed statistical studies of the proposition have prompted has been the move to focus more intently on those contexts in which fundamentals-based models have worked best' Eric Pentecost's view is typical:
. . . if expectations are driven by charts [i.e., if they are not based on fundamentals], then economists clearly have little if ...