A re-examination of the impacts of macroeconomic and financial shocks on real exchange rate fluctuation: evidence from G7 and Asian countries

Douglas Wong

Applied Economics, 2020, vol. 52, issue 50, 5491-5515

Abstract: This paper aims to investigate the sources of real exchange rate fluctuation by utilizing sign restrictions in structural vector autoregressive (SVAR) method. Under an agnostic identification scheme, the empirical results show that the delayed overshooting puzzle still exists in response to monetary shock even if price puzzle is ruled out by construction. In contrast, all countries experience a significant initial real depreciation, and then gradually appreciate in response to currency risk premium (CRP) shock. This finding is consistent with Dornbusch’s overshooting model. In addition, I examine the importance of investors’ expectations in determining the short-term variations in the real exchange rate. The results indicate that the CRP and expectation shocks obviously outperformed the demand, supply and monetary shocks in terms of explaining the real exchange rate fluctuation.

Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2020.1765962 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:52:y:2020:i:50:p:5491-5515

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2020.1765962

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().