Real exchange rates, preferences, and incomplete markets: evidence, 1961-2001

Allen Head (), Todd Mattina and Gregor Smith

Canadian Journal of Economics, 2004, vol. 37, issue 3, 782-801

Abstract: Many international macroeconomic models link the real exchange rate to a ratio of marginal utilities. We examine this link empirically, allowing the marginal utility of consumption to depend on government expenditure, real money balances, or external habit. We also consider two environments with incomplete asset markets; one with exogenously missing markets but an endogenous discount rate that anchors the distribution of wealth and one with endogenous market segmentation. Although none of these satisfies theoretical and over-identifying restrictions for every country, utility with external habit persistence provides the best match with real exchange rates for OECD countries between 1961 and 2001.

JEL-codes: F41 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (11)

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Journal Article: Real exchange rates, preferences, and incomplete markets: evidence, 1961–2001 (2004)
Working Paper: Real Exchange Rates, Preferences, And Incomplete Markets: Evidence, 1961-2001 (2004)
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