Real Exchange Rate Overshooting RBC Style

A. Patrick Minford, Eric Nowell, David Meenagh and Prakriti Sofat

No 5029, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper establishes the ability of a Real Business Cycle model to account for real exchange rate (RXR) behaviour, using UK experience as empirical focus. We show that a productivity burst simulation is capable of explaining the appreciation of RXR and its cyclical pattern observed in the data. We then test if our model is consistent with the facts. We bootstrap our model to generate pseudo RXR series and check if the ARIMA parameters estimated for the data lie within 95% confidence limits implied by our model. We find that RXR behaviour is explicable within an RBC framework.

Keywords: Real exchange rate; Productivity; Real business cycle (search for similar items in EconPapers)
JEL-codes: E32 F31 F41 (search for similar items in EconPapers)
Date: 2005-04
New Economics Papers: this item is included in nep-dge, nep-fmk, nep-ifn and nep-mac
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Citations: View citations in EconPapers (3)

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