This volume grew out of a National Bureau of Economic Research conference on exchange rates held in Bellagio, Italy, in 1982. In it, the world's most respected international monetary economists discuss three significant new views on the economics of exchange rates - Rudiger Dornbusch's overshooting model, Jacob Frenkel's and Michael Mussa's asset market variants, and Pentti Kouri's current account/portfolio approach. Their papers test these views with evidence from empirical studies and analyze a number of exchange rate policies in use today, including those of the European Monetary System.

This paper is an attempt to examine several theories about the dynamics of exchange rate adjustment. All the models start from the premise that exchange rates are determined by the balancing of supply and demand for each currency and that expectations play a prime role in determining demand. The paper considers four aspects of the exchange rate adjustment process—each of which has been proposed as a source of exchange rate variability. First, the long-standing debate on stabilizing versus destabilizing speculation is re-examined. Possible patterns of exchange rate movements that might result from both extrapolative and rational expectations are shown. Then, the assumptions and exchange rate adjustment pattern implied by the asset market equilibrium approach to exchange rate determination are described. No one aspect of the exchange rate adjustment considered in this paper is held to be responsible for the large exchange rate variations observed in recent years. Rather, from both an a priori consideration and empirical examinations, each of the processes considered appears to have contributed to observed exchange rate variations.

I began serious consideration of the issues and subject matter that comprise this book as a graduate student at the University of Massachusetts at Amherst. In need of a dissertation topic and vaguely curious about international monetary economics, I decided to sit in on Leonard Rapping's undergraduate course on international finance. Needless to say, I was soon hooked. Within several months I was teaching my own course on international money and beginning to write an outline of what would become my doctoral dissertation on foreign exchange speculation. Once completed the dissertation thesis became this basis for this book.

''In summary, the book is valuable as a textbook both at the advanced undergraduate level and at the graduate level. It is also very useful for the economist who wants to be brought up-to-date on theoretical and empirical research on exchange rate behaviour.'' ""Journal of International Economics""

This book collects together the basic documents of an approach to the theory and policy of the balance of payments developed in the 1970s. The approach marked a return to the historical traditions of international monetary theory after some thirty years of departure from them – a departure occasioned by the international collapse of the 1930s, the Keynesian Revolution and a long period of war and post-war reconstruction in which the international monetary system was fragmented by exchange controls, currency inconvertibility and controls over international trade and capital movements.