Interdependence in Real Effective Exchange Rates: Evidence from the Dynamic Hierarchical Factor Model

Jun Nagayasu

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze and quantify the interdependence of real effective exchange rates while considering the regional location of countries. More specifically, using the dynamic hierarchical factor model (Moench et al 2011), we decompose exchange rate movements into worldwide and two regional factors as well as country-specific elements. Then we provide evidence that a substantial proportion of variation in the exchange rates is country-specific.

Keywords: Real effective exchange rates; dynamic hierarchical factor model; variance decomposition (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2013-04
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