Tech Report Number
1997-005
Abstract
This paper suggests a structural connection between rational speculative activity and exchange rate volatility. We note that, when Friedman originally claimed that rational speculators must smooth exchange rate, he excluded interest rate differentials form his interpretation of speculator behavior. If interest rates matter, rational speculators could sometimes violate Friedman's description, and buy a currency whose value is relatively high or sell a currency whose value is low.
Keywords
Exchange Rate
Date of this Version
1997
COinS