Drawing on both macroeconomic and micro-based exchange rate models, the authors revisit the academic literature on exchange rate determination and summarize the state of knowledge about what drives movements in exchange rates. The focus is on highlighting recent advances in our understanding...

Understanding what causes the exchange rate to move has been on ongoing challenge for economists. Despite extensive research, traditional macro models of exchange rate determination--with the exception of the Bank of Canada's exchange rate equation--have typically not fared well, motivating...