Nominal and real exchange rate co-movements

Rebeca Jiménez-Rodríguez and Amalia Morales-Zumaquero
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Amalia Morales-Zumaquero: University of Málaga

Journal of Applied Economics, 2014, vol. 17, 283-300

Abstract: This paper investigates the existence of common movements between nominal and real exchange rates across different countries in three regions – North America, Western Europe, and Central and Eastern Europe – by using the multi-factor model. It also examines the role of macroeconomic fundamentals (i.e., prices, money and output) in order to explain the variance of the exchange rate global factor. The findings suggest the existence of co-movements among exchange rates. The exchange rate global factor seems to play a central role in explaining exchange rate variability in Western Europe, whereas regional and country-specific factors are the most important ones in North America and Central and Eastern Europe, respectively. Finally, the paper shows empirical evidence in favour of the connection between exchange rate global factor variability and macroeconomic fundamentals. Moreover, the importance of fundamentals has increased in the recent global crisis.

Keywords: exchange rates; co-movements; CEE countries; dynamic factor (search for similar items in EconPapers)
JEL-codes: E32 F31 F44 (search for similar items in EconPapers)
Date: 2014
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https://ucema.edu.ar/publicaciones/download/volume17/jimenez_appendix.pdf Online Appendix (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cem:jaecon:v:17:y:2014:n:2:p:283-300

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