This theory arose under the influence of the global economic crisis of 1929-1933, when the failure of the ideas of a neoclassical school, which advocated free competition and non-interference of the state in the economy, was revealed. The founder of this theory is Keynes, whose ideas took dominant positions in the 50-60s in Western economic science. This theory is represented by two directions:
theory of moving parities or a maneuverable standard (I. Fisher and J.M. Keynes); theory of equilibrium courses or neutral courses.
According to the American economist Fisher stabilization of the purchasing power of money should be carried out by maneuvering with the gold parity of the currency. His project of “elasticity” of the dollar was designed for gold currency. In contrast, Keynes defended elastic parities in relation to non-exchange credit and paper money, as he considered the gold standard to be obsolete. Keynes recommended that the national currency be reduced in order to influence prices, exports, production and employment in the country, to fight for foreign markets. These recommendations have been used by the UK and other countries since the 30s of the XX century.
The theory of neutral courses replaces purchasing power parity with the concept of “balance of course”. According to the adherents of this theory, the exchange rate corresponding to the state of equilibrium of the national economy is neutral. Considering the exchange rate only as the embodiment of exchange rates, depending on the supply and demand of the currency, the authors, on the basis of the relationship of various factors, build systems of equations to assess changes in exchange rates under their influence. On this basis, new theories have emerged:
rational expectations of foreign exchange market operators, which analyzes the impact of their behavior (purchase or sale of a certain currency) on exchange rates; excessively increased exchange rate response to economic events; hypothesis of “news” as a cursory factor; the concept of portfolio balance, which takes into account the impact of the increasing modern international capital movement, in particular in the form of a “portfolio” of securities, on the exchange rate.
The theory of neutral exchange rates emphasizes the impact on the exchange rate of factors that can not always be measured: customs duties, currency speculation, the movement of “hot” money, political and psychological factors.