Jump to ContentJump to Main Navigation
Fundamental Determinants of Exchange Rates$
Users without a subscription are not able to see the full content.

Jerome L. Stein and Polly Reynolds Allen

Print publication date: 1998

Print ISBN-13: 9780198293064

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198293062.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2019. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a monograph in OSO for personal use (for details see www.oxfordscholarship.com/page/privacy-policy).date: 21 July 2019

The Natural Real Exchange Rate Between the French Franc and the Deutschmark: Implications for Monetary Union

The Natural Real Exchange Rate Between the French Franc and the Deutschmark: Implications for Monetary Union

Chapter:
(p.126) 4 The Natural Real Exchange Rate Between the French Franc and the Deutschmark: Implications for Monetary Union
Source:
Fundamental Determinants of Exchange Rates
Author(s):

Liliane L. Crouhy‐Veyrac

Michèle Saint Marc

Publisher:
Oxford University Press
DOI:10.1093/0198293062.003.0004

The bilateral French/German real exchange rate does respond to the real fundamentals of relative thrift and productivity as predicted by the NATREX model. Increases in relative thrift, measured by relative social saving/national product, and increases in relative productivity, measured by the relative capital/employment ratios, both produce long‐run real appreciation of the French franc relative to the Deutsche mark. The sample period, 1971–90, includes a variety of nominal exchange‐rate policies. The responsiveness of the real exchange rate to the fundamentals supports the NATREX assumption that real exchange rates will adjust, regardless of the nominal exchange rate regime. If differing national monetary policies, either actual or expected, prevent the adjustment of relative goods prices, then the pressures to change nominal exchange rates become irresistible, as seen in the disruption of the EMS exchange rates in 1992. Moreover, even with similar monetary policies, wage and price rigidity may slow the adjustment of the actual real exchange rate to the NATREX, increasing the economic costs of a fixed nominal exchange rate.

Keywords:   EMS exchange rates, French/German nominal exchange‐rate policies, French/German real exchange rate, French/German real fundamentals productivity and thrift

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .