Wt woo exchange rate determination 3 the results suggest to us that a fair testing of the monetary approach ought to be based on an empirically valid specification of the money demand function 3 deriving the exchange rate equation on the basis of work in woo 1982 we assume that the monthly money. 2 lecture notes 3 the monetary approach this chapter is our rst attempt to understand exchange rate determination a good model will help us understand the past and anticipate the future in chapter 2 we saw that many economic decisions are a ected by expectations of future exchange rates yet exchange rates are notoriously hard to predict. Structural models of exchange rate determination in this chapter we will attempt to explain the behavior of exchange rates by analyzing the behavior of supply and demand in the foreign exchange rate market recall that in chapter i we emphasized 1d the monetary approach to the bop. Become known as the monetary approach to exchange rate determination thus traditional approaches to exchange rate determination are the 5 clarifying this point further johnson 1977c p 7 said a balance of payments deficit or surplus represents a transient stock adjustment process evoked by initial inequality. Start studying chapter 11 exchange rates 1 the monetary approach in the long run learn vocabulary terms and more with flashcards games and other study tools
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