fundamentals

[Michael Perelman <michael@xxxxxxxxxxxxxxxxx>]

Paul Davidson wrote:
>
> Michael: What determines the "proper" (non-bubble) exchange rate? Some real
> fundamental sch as purchasing power parity?
>
Forgive me for alluding to Marx, but his work does affect my understanding.
Yes, there are some fundamentals, but they are unmeasurable.  When they go
to far afield from fundamental values, so far that they become relatively
evident to non-experts [such as the Japanese land prices], then a crisis will
occur, even though the Japanese have done a remarkable job of containing it.

Foreign exchange values are a secondary type of relationship.  Unlike prices
which should bear some relationship with underlying values, foreign exchange
values are more like derivatives, which have only an indirect relationship
with prices which, in turn, have a flexible relationship with underlying
values.

The point of my post was to suggest that exchange values with the yen have
not moved all that much.  So it becomes difficult to say if they are moving
away from or toward some "equilibrium."  Land prices, however, had moved so
far, within the Japanese price system, that something was obviously amiss.

--
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 916-898-5321
E-Mail michael@xxxxxxxxxxxxxxxxx