Accounting for real exchange rate changes at long time horizons

Lein-Lein Chen, Seungmook Choi and John Devereux

Journal of Macroeconomics, 2015, vol. 46, issue C, 264-277

Abstract: Engel (1999) introduced real exchange rate accounting to determine the importance of nontradables for real exchange rate movements. We extend his approach in two directions. First, we identify a potential bias in the mean squared error (MSE) measure used in previous work. Second, using the corrected MSE measure we provide new empirical evidence that nontradables explain real exchange rate movements but only at really long horizons – over decades not years.

Keywords: Purchasing power parity; Traded and nontradable prices; Real exchange rates; Mean squared error ratio (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:46:y:2015:i:c:p:264-277

DOI: 10.1016/j.jmacro.2015.09.009

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