Analysis of Short-Run Exchange Rate Behavior March, 1973 to September, 1975

Abstract

Exchange rates among major foreign currencies have experiences considerable short run variability since the inception of generalized floating exchange rates in March 1973. Exchange rate movements of individual foreign currencies against the U.S. dollar of one-half percent or more in a single day have been frequent; movements of two percent or more have occurred on a few occasions. The sentiment that his volatility is evidence of a failure of the floating rate system or a failur of stabilizing speculation is widely held. In this paper we look at the evidence of the first 30 months of floating rates in order to discover how exchange rates have fluctuated and why. Such knowledge is a precondition for examining what role official intervention might play in exchange markets.