The Principles of Exchange Rate Determination in an International Finance Experiment
This paper reports the first experiments designed to explore the behavior of economies with prominent features of international finance. Two “countries,” each with its own currency, were created. International trade could take place only through the operation of markets for currency. The law of one...
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| Veröffentlicht in: | The Journal of political economy 1997-08, Vol.105 (4), p.822-861 |
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| container_title | The Journal of political economy |
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| creator | Noussair, Charles N. Plott, Charles R. Riezman, Raymond G. |
| description | This paper reports the first experiments designed to explore the behavior of economies with prominent features of international finance. Two “countries,” each with its own currency, were created. International trade could take place only through the operation of markets for currency. The law of one price and the flow of funds theory of exchange rate determination were used to produce general equilibrium models that captured much of the behavior of the economies. Prices of goods, as well as the exchange rate, evolve over time toward the predictions of the models. However, both the law of one price and purchasing power parity can be rejected for reasons that do not appear in the literature. Patterns of international trade were as predicted by the law of comparative advantage. |
| doi_str_mv | 10.1086/262095 |
| format | Article |
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Two “countries,” each with its own currency, were created. International trade could take place only through the operation of markets for currency. The law of one price and the flow of funds theory of exchange rate determination were used to produce general equilibrium models that captured much of the behavior of the economies. Prices of goods, as well as the exchange rate, evolve over time toward the predictions of the models. However, both the law of one price and purchasing power parity can be rejected for reasons that do not appear in the literature. Patterns of international trade were as predicted by the law of comparative advantage.</abstract><cop>Chicago</cop><pub>The University of Chicago Press</pub><doi>10.1086/262095</doi><tpages>40</tpages></addata></record> |
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| ispartof | The Journal of political economy, 1997-08, Vol.105 (4), p.822-861 |
| issn | 0022-3808 1537-534X |
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| source | Worldwide Political Science Abstracts; Business Source Complete; Periodicals Index Online; JSTOR Archive Collection A-Z Listing; University of Chicago Press Journals (Full run) |
| subjects | Currency Economic theory Economics Exchange Rate Exchange rate determination Exchange rates Experimental economics Finance Foreign exchange rates International economics International finance International Relations International trade Modeling Political economy Purchasing power parity Studies Supply |
| title | The Principles of Exchange Rate Determination in an International Finance Experiment |
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