1.1976-JPE--Dornbusch-Expectations_and_Exchange_Rate_Dynamics.pdf

Expectations and Exchange Rate Dynamics Author(s): Rudiger Dornbusch Source: The Journal of Political Economy, Vol. 84, No. 6 (Dec., 1976), pp. 1161-1176 Published by: The University of Chicago Press Stable URL: /stable/1831272 Accessed: 30/11/2009 11:40 Your use of the JSTOR archive indicates your acceptance of JSTORs Terms and Conditions of Use, available at /page/info/about/policies/terms.jsp. JSTORs Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at /action/showPublisher?publisherCode=ucpress. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@. The University of Chicago Press is collaborating with JSTOR to digitize, preserve and extend access to The Journal of Political Economy. Expectations and Exchange Rate Dynamics Rudiger Dornbusch MassachusettsInstituteof Technology The paper develops a theory of exchange rate movements under perfect capital mobility, a slow adjustment of goods markets relative to asset markets, and consistent expectations. The perfect foresight path is derived and it is shown that along that path a monetary expansion causes the exchange rate to depreciate