Introduction

The impact of the inherent volatility and unpredictability of exchange rates on macroeconomic conditions is central to the debate about fixed and flexible exchange rates. This book contributes to an understanding of the key issues relating to the intriguing questions of the link between the exchange rate instability and domestic inflation; measurement of variations in the structure of relative prices; the impact of real exchange rate changes on world trade; and the extent to which exchange rates are forecastable. The approach is broadly empirical and applies econometric and modelling techniques to a wide range of recent data for the Group of Seven and other OECD countries.