Exchange rates in the short run: Some further results

This note extends our earlier results [published in this Journal. Vol. 10 (1977)] on the dollar DM exchange rate to the 1977–78 period. The original equation estimated on 1971–76 data overpredicts the dollar value of the DM during most of 1978. Thus the rise of the DM in the second half of 1978 was consistent with the ‘fundamentals’ equation. We also show that a net foriegn liability position may destabilize the foreign exchange market and that this may have been empirically significant for the dollar DM rate in 1973–74.