Jeffrey Frankel

Quotes From

“Empirical Research on Nominal Exchange Rates” (1995)

• Positive U.S. money surprises [in the early 1980s] were associated with appreciations of the dollar at the same time that they were associated with increases in interest rates, leading the authors to conclude that: (1) during this period the Federal Reserve was expected to correct any deviations of the money supply from its target path; and (2) expectations of monetary contraction tend to raise real interest rates and cause the currency to appreciate . . . [But] the money announcements lost much of their impact later in the 1980s, after the Fed began to put less emphasis on its M1 targets.#
• No macroeconomic variable other than the exchange rate demonstrates regime-varying volatility.#
• Expectations can be described as stabilizing when the effect of an appreciation today – relative to some long-run path or mean – is to induce market participants to forecast depreciation in the future. . . . Expectations can be described as destabilizing, on the other hand, when the effect of an appreciation is to induce market participants to forecast more appreciation in the future.#