The need to understand the mechanics of exchange rates and their developments has generated a
vast theoretical and empirical literature. The flexible price monetary model, which subsequently
gave way to the overshooting or sticky-price model, the equilibrium and liquidity models as well as
the portfolio balance approach have characterised three decades of research, from the 1960s to the
1980s. More recently, since the publication of Obstfeld and Rogoff's (1995) seminal "redux" paper,
the ne...
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