Covariability of real exchange rates and fundamentals

Christian Grisse and Fabian Scheidegger

Economics Letters, 2021, vol. 201, issue C

Abstract: We study low-frequency correlations between real exchange rates (RERs) and fundamentals using historical data starting in 1870. Increases in real GDP per capita – a proxy for the Balassa–Samuelson effect – and terms of trade improvements in the United States relative to advanced economies are associated with stronger US dollar RERs, as predicted by economic theory. For several other fundamentals considered in the literature, we find no evidence of robust low-frequency correlations with RERs.

Keywords: Real exchange rates; Balassa–Samuelson effect; Low-frequency correlation; Historical data (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:201:y:2021:i:c:s0165176521000598

DOI: 10.1016/j.econlet.2021.109782

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