Post-Keynesian Exchange Rate Theories -

The Post-Keynesian View on Exchange Rates: towards the consolidation of the different contributions in the ABM and SFC frameworks

Abstract: The article contributes to the consolidation of the post-Keynesian (PK) view on nominal exchange rates on two interconnected steps. Firstly, it presents a critical assessment of the different PK works on this issue, dividing them into two strands: one highlights the role of technical analyses, financial convention and behavioural insights in investors’ decision-making process in advanced countries’ FX markets, while the other focuses on the dynamics of emerging market economies’ (EME) currencies, analysing how a currency’s position in the current International Monetary and Financial System (IMFS) influences money managers’ decisions. Secondly, the article suggests the use of the agent-based (AB) and stock-flow consistent (SFC) equations for consolidating the main PK arguments in a common framework. The flexibility of the AB-SFC framework allows for a complex, detailed and realistic account of expectations formation in FX markets and international portfolio allocation, enhancing the theoretical debate and formal PK models.

JEL codes: B5, F31, F37.

Keywords: Exchange rates, Currency hierarchy, Agent-based modelling, Stock-flow consistent modelling.