1
$\begingroup$

If I have 1% of the world supply of US dollars, and I decide to sell all of them to buy Euros, how much should I expect the exchange rate to change? Is there some kind of empirically determined price elasticity of demand that I could use to predict this? I've tried looking this up but I haven't been able to find it.

I'm also interested in the long run price elasticity of demand. Eg, how much should I expect my 1% USD sale to affect the price of USD in a year?

$\endgroup$
-1
$\begingroup$

There is no way to predict that.

A "price" is just the level of the last transaction. What happens in the next transaction does not depend on the previous transaction. So if you sell dollars at 1.10 dollars per Euro, the next person to sell dollars might sell them at 1.12 or 1.08 or some other amount based on a myriad of factors. There is no way to predict what trades might occur in the future, just from knowing the trade you made in the present.

$\endgroup$
  • $\begingroup$ Obviously you can't predict exact prices of trades in the future, but in economics you can often predict the expected marginal effects of actions. This is what price elasticities are: a way of measuring the expected effect on the future price of a good based on changes in its supply or demand. That's what I'm asking for here. $\endgroup$ – Buck Shlegeris Aug 26 '16 at 20:41

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.