ABSTRACT
With exchange rates since early 1973 largely determined by market forces, it is important now to be able to identify the principal influences underlying exchange rate movements. With this general aim in mind, this chapter examines four approaches to the analysis of exchange rate behaviour. 1 The first, and oldest, is the Purchasing Power Parity theory (PPP). The second draws on the neo-Keynesian model of Chapter 11. The third is monetarist inspired. The fourth, and most recent, focuses on the role of wealth and portfolio balance.
