ABSTRACT
The collapse of the Bretton Woods fixed exchange rate system and subsequent change to market-determined exchange rates in 1973 dramatically changed the research focus of empirical work on exchange rates. The economic argument for changing to a floating exchange rate regime centered largely on the issue of market efficiency.3 In an efficient market, exchange rates should fully reflect all available information, and rational economic decisions based on these relative prices should insure an efficient allocation of resources. After the change to flexible exchange rates, empirical research focused on testing the efficiency hypothesis, i.e., testing whether floating exchange rates did indeed serve as efficient aggregators of information.
