The Determinants of Exchange Rates between Two Major Currencies
研究了30多年美元与德国马克的汇率数据，发现长期汇率主要由美德两国的相对批发价格决定，但利率变化和贸易平衡也有重要的短期影响。
This research examines over three decades of data on mark-dollar exchange rates and provides evidence that long-term exchange rates between dollars and marks are largely a function of relative wholesale prices in the U.S. and Germany. However, interest rate changes and the balance of trade are found to have an important transitory impact on exchange rates as well. The findings are important for demonstrating the significance of Purchasing Power Parity, interest rates, and trade flows on exchange rates over a long time interval that spanned systems of both fixed and flexible exchange rates. This research investigates the determinants of the exchange rate between the two of the most important currencies in the world over the last 30 years: the U.S. dollar ($) and the German Mark (DM). The investigation is important not only for indicating what drives the relative value of these two important currencies but also for providing evidence on the factors that affect exchange rates in general. In Section I, prior theories, hypothesis, and empirical studies of exchange rates are reviewed. In Section II, the empirical examination procedures and data are described. The results are evaluated in Section III, and the conclusion is written in Section IV. THEORIES OF EXCHANGE RATES As summarized by Murphy (1992), the exchange rate between two currencies is determined by the supply and demand for those two currencies. The supply and demand for currencies on the international markets is, in turn, determined by the buying power of the currencies in terms of both current consumption opportunities and investment for future consumption. With the demand for currency to satisfy current consumption being a function of relative prices in different countries, exchange rates would be determined by the relative prices of some basket of goods in different countries if there were perfect markets and perfect elasticity of demand relative to price (Melitz, 1982). This latter theory, often called the Purchasing Power Parity (PPP) Theory, is supported by some empirical evidence indicating a positive relationship between price indexes and exchange rates, especially over long time horizons (Gaillot, 1970). However, empirical studies have also uncovered evidence of a non-perfect relationship between relative prices and exchange rates (Daniel, 1986). The existence of heterogeneous consumer preferences and of market imperfections like taxes, tariffs, transactions costs, and asymmetric information may cause these significant deviations from PPP (Adler and Dumas, 1983). In a world with imperfect markets, a number of factors other than the relative current prices of goods and services can affect exchange rates. In particular, the supply and demand for currencies for investment for future consumption may have an important effect on the exchange rates between currencies. The relative demand for currencies from investors will be affected by the relative interest rates that can be earned on invested funds in different countries. In addition, investors' supply and demand for currencies will also be a function of the future expected purchasing power of the currencies, which in turn may depend on future inflationary expectations as well as on the current buying power of the currencies in the international markets. The general psychological outlook of investors may also affect their investment decisions and exchange rates (Bergstrand, 1983). RESEARCH METHODOLOGY AND DATA The prior section indicated that exchange rates between currencies in two countries could be hypothesized to be a function of relative prices, relative interest rates, and relative inflationary expectations in the two countries. To test the effect of each of these factors on exchange rates, a log-linear model can be specified. A log-linear form is appropriate because it permits the interrelationship between the independent variables to have a multiplicative effect (Murphy, 1992). …