American Economic Association Chartists, Fundamentalists, and Trading in the Foreign Exchange Market Author(s): Jeffrey A. Frankel and Kenneth A. Froot Source: The American Economic Review, Vol. 80, No. 2, Papers and Proceedings of the Hundred and Second Annual Meeting of the American Economic Association (May, 1990), pp. 181-185 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/2006566 Accessed: 15-06-2016 19:28 UTC Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://about.jstor.org/terms JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact
[email protected]. American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to The American Economic Review This content downloaded from 128.103.149.52 on Wed, 15 Jun 2016 19:28:57 UTC All use subject to http://about.jstor.org/terms THE RATIONALITY OF THE FOREIGN EXCHANGE RATEt Chartists, Fundamentalists, and Trading in the Foreign Exchange Market By JEFFREY A. FRANKEL AND KENNETH A. FROOT* The overshooting theory of exchange rates Index, Mwrch 19710X 10 160 seems ideally designed to explain some im- portant aspects of the movement of the dol- 8 lar in recent years. Over the period 1981-84, 140 for example, when real interest rates in the 6 United States rose above those of its trading 120 partners (presumably due to shifts in the monetary/fiscal policy mix), the dollar ap- 2 preciated strongly.