Are Foreign Exchange Markets Efficient?
yes, I would say that forex markets are efficient. (Arguably the most efficient markets that exist). First, they are the most liquid, prices fluctuate quickly and easily to account for changes in supply and demand. This efficiency is especially encouraged by the fact that they are also open. That is, there is no opening and closing bell. One can trade any currency at any time of the day one wishes. As for dornbush, what is your question? The model was constructed in an attempt to model the fluctuations that currencies experience about their long-term rate. Under this assumption (that currencies have a long term rate), markets are not perfectly efficient because they are not always at the ”correct’, or ”normal” long term rate. So, you are right. But the fact of the matter is that Dornbush (nor another exchange rate model) does not hold up to empirical testing, so its implications are irrelevant. Consider this question, why must it be the case that currencies have a long-run value? It
