Real Exchange Rates: Some Evidence from the Postwar Years

THE MOVE TO FLEXIBLE EXCHANGE RATES early in 1973 is the type of experiment that economic researchers experience rarely. A marked change in monetary regime from fixed to flexible rates was followed by years of floating rates. Initially, some governments may have thought of flexible rates as a temporary expedient to last only until new parities were firmly established. Within a few years, however, the governments of principal developed countries, including the United States, accepted flexible rates as a durable arrangement. Although there has been considerable intervention in the currency markets, attempts at policy coordination and talk about target zones (particularly in recent years), the dollar and several other currencies have continued to float. Most major trading countries have reduced or removed exchange controls and other restrictions on capital mobility.