Accounting for the source of exchange rate movements: new evidence

Katie Farrant and Gert Peersman (gert.peersman@ugent.be)

Bank of England working papers from Bank of England

Abstract: This paper analyses the role of the real exchange rate in a structural vector autoregression framework for the United Kingdom, euro area, Japan and Canada versus the United States. A new identification strategy is proposed building on sign restrictions. The results are compared to the benchmark conventional approach of Clarida and Gali based on long-run zero restrictions. Although the restrictions are derived from the same theoretical model, the results are strikingly different. In contrast to the benchmark model, an important role for nominal shocks in explaining real exchange rate fluctuations is found.

Date: 2005-08
New Economics Papers: this item is included in nep-cba, nep-fmk and nep-ifn
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Related works:
Working Paper: Is the exchange rate a shock absorber or a source of shocks? New empirical evidence (2005)
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