The economic background [June 1995]

Ronnie McDonald, Brian Ashcroft (Editor), Kim Swales

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Abstract

In our last review of the World Economy we focused on the implications of the continued
volatility of floating exchange rates, and in particular the behaviour of the US dollar, for the reform of the International Monetary System. This topic proved to be one of the main talking points at the recent G7 meetings in Halifax, Canada. In this review we attempt to explain why when nominal exchange rates are left free to float they are generally very volatile and impart a similar degree of volatility into real exchange rates. In particular, we ask the question: can economic fundamentals explain the exchange rate behaviour we observe in
foreign exchange markets, or is the behaviour simply a reflection of ill-informed speculation (what used to referred to in the UK as the 'gnomes of Zurich' effect)?
Original languageEnglish
Pages (from-to)1-5
Number of pages5
JournalQuarterly Economic Commentary
Volume20
Issue number4
Publication statusPublished - Jun 1995

Keywords

  • Scottish economic background
  • Scottish economy
  • international economic conditions

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