Long-Run Movements in Real Exchange Rates: 1264 to 2020

Neil Kellard (nkellard@essex.ac.uk), Jakob Madsen and Stuart Snaith

Essex Finance Centre Working Papers from University of Essex, Essex Business School

Abstract: The real exchange rate is an important measure of the relative strength of an economy. Given long-term productivity differentials between countries, Harrod-Balassa-Samuelson effects suggest that stronger economies will experience real exchange rate appreciations and vice versa. How long can these effects last? Using a novel dataset and trend tests robust to pre-testing for the order of integration, we examine the path of ten ultra-long real exchange rates relative to Sterling with data commencing in the 13th century.Whilst we show Sterling commonly presents a trend appreciation from the 16th century to the 19th century, a striking trend depreciation occurred throughout 20th century with some evidence of prior decline. Further analysis reveals that real exchange rates are cointegrated with productivity differential proxies over much of the last millennia, suggesting the UK’s current productivity decline is more entrenched and persistent than previously thought.

Keywords: Real exchange rate; Sterling; Harrod-Balassa-Samuelson effects; Robust trends; Cointegration (search for similar items in EconPapers)
Date: 2023-05-17
New Economics Papers: this item is included in nep-his, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:esy:uefcwp:35634

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