On the Franc


Frankel J. On the Franc. Annales de l'INSEE. 1982;47-48.


Six assumptions that any exchange rate theory must take into account are tested on French data: covered interest parity, rational expectations, exchange risk premium, political risk premium, money demand function and slow adjustment to purchasing power parity. The evidence is consistent with what has been found for other countries, with the important qualification that French capital controls require that interest parity be amended. There is a term analogous to a "tax" on foreign assets. The building blocks are then combined in various ways into three alternative exchange rate models: a stickyprice monetary model, protfolio-balance model and synthesis model.