Abstract

JOHN T. HARVEY The post-Bretton Woods era has been a truly exciting, albeit frustrating, time for those studying foreign exchange rates. Theory after theory has been presented as an explanation of the peculiarities of this period and, while each has proved promising in some limited context, all have thus far failed to provide robust empirical results (Gros, 1989; MacDonald and Taylor, 1989). The problem lies much deeper than the statistics themselves, however, and the simple adoption of more advanced econo­ metric techniques like vector autoregression and cointegration cannot make up for the weaknesses in the theoretical models. A recent paper in this journal attempted a. summary and synthesis of what little work has been done by Post Keynesian authors in the area of exchange rate detennination (Harvey, 1991). While well short of a complete theory, the Post Keynesian view's emphasis on "real world" phenomena such as uncertainty, historical time, and the irreversibility of decision making make it a better candidate to explain of the post­ Bretton Woods international monetary system than those from the monetarist, Keynesian, or rational expectations perspectives. But criti­ cismalonecanneverreplaceexistingtheory, so the purpose of this paper is to provide further empirical evidence upon which the theory