How Real are Real Exchange Rates?

Yoonbai Kim ()

International Economic Journal, 1997, vol. 11, issue 1, 87-108

Abstract: This Paper analyzes the role of real disturbances in the real dollar exchange rates of the mark, yen and the pound both during the post-1973 float and in the long-run historical date. The results indicate dominate roles of real shocks in all three exchange rates in the post-1973 float although a substantial portion of short-run variations in the mark and yen contains monetary characteristics. In the long historical date, real shocks are far less important explaining only a small portion of nominal exchange rate movements and 50 to 80 percent of real exchange rate movements. The analysis is based on the Mundell-Fleming-Dornbusch model as the structural model and the multivariate method of time series decomposition to incorporate the long-run invariance of the exchange rate with respect to monetary shocks. [F31, F41]

Date: 1997
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DOI: 10.1080/10168739700000006

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