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The long-run determination of the real exchange rate. Evidence from an intertemporal modelling framework using the dollar-pound exchange rate

Ioannis Litsios () and Keith Pilbeam ()
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Ioannis Litsios: University of Bradford
Keith Pilbeam: City, University of London

Open Economies Review, 2017, vol. 28, issue 5, 1011-1028

Abstract: Abstract This paper develops a model of optimal choice over an array of different assets, including domestic and foreign bonds, domestic and foreign equities and domestic and foreign real money balances to examine the determination of the real exchange rate in the long-run. The model is tested empirically using data from the UK and the USA. The results show that all the coefficients of the model are right signed and significant and consequently financial assets may play a significant role in the determination of the real exchange rate.

Keywords: Real exchange rate; Intertemporal model; Asset prices; Vector Error Correction Model (search for similar items in EconPapers)
JEL-codes: F31 G11 (search for similar items in EconPapers)
Date: 2017
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