The Real Exchange Rate in Small Open Developed Economies: Evidence from Cointegration Analysis

Debabrata Bagchi, Georgios Chortareas () and Stephen M. Miller ()

No 2003-27, Working papers from University of Connecticut, Department of Economics

Abstract: We examine the effects of the terms of trade and the expected real interest rate differential on the real exchange rate in a sample of small open developed economies. We employ cointegration analysis to search for possible long-term linkages. We find that while both the terms of trade and the expected real interest rate differentials affect the real exchange rate in the long run, the role of the terms of trade generally proves more consistent across countries. The speed of adjustment for the expected real interest rate differential in the error-correction model, however, is quantitatively larger than it is for the terms of trade.

Keywords: Real Exchange Rates; Real Interest Rate Differentials; Terms of Trade (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: Written 2003-06
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Published in Economic Record, March 2004

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Related works:
Journal Article: The Real Exchange Rate in Small, Open, Developed Economies: Evidence from Cointegration Analysis (2004)
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