The Movement Of Exchange Rates And The Role Of News: Some Theoretical Considerations

The objective of this paper is give a theoretical background of the movement of exchange rates and the role of news. The first section shows how exchange rates have been volatile during the last sixteen years. The second section puts into perspective the relationship between exchange rates and national price levels, whereas the third section considers the relationship between exchange rates and interest rates. The implementation of 'News' to the (Efficient Markets Hypothesis) EMH framework is discussed in section 4, then it should be more appropriate to implement exchange rate models. In this section, the attempt is to build a model of exchange rate determination as a news format into the EMH framework. Thus, the research is carried out for both monetarist and portfolio balance theories, in order to explain the behaviour of each variable within the model taken. Finally, in section 5, we show how cointegration technique can be used for testing the long run equilibrium relationship in exchange rate determination models