The core idea is that the sluggishness of domestic prices and wages forces the exchange rate to be the shock absorber for monetary policy. Dornbusch's theory, which he spiced up by incorporating the ...

Greenwood, Robin, Samuel G. Hanson, Jeremy C. Stein, and Adi Sunderam. "A Quantity-Driven Theory of Term Premia and Exchange Rates." Quarterly Journal of Economics 138, no. 4 (November 2023): ...