One of the perceived benefits of a flexible exchange rate system is the insulation of the domestic economy from foreign shocks, and the potential for independent policy actions. In view of the considerable uncertainty, which pervades appropriate specification of the relevant theoretical models,...

One of the perceived benefits of a flexible exchange rate system is the insulation of the domestic economy from foreign shocks, and the potential for independent policy actions. In view of the considerable uncertainty, which pervades appropriate specification of the relevant theoretical models,...

This article formulates, estimates and simulates a structural model of the sterling‐dollar exchange rate over the floating rate period. A critique of existing empirical implementations of the asset‐market approach is followed by formulating a small structural model which augments a carefully...