In Search of Dominant Drivers of the Real Exchange Rate

Wataru Miyamoto, Thuy Lan Nguyen and Hyunseung Oh

No 1373, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We uncover the major drivers of macro aggregates and the real exchange rate at business cycle frequencies in Group of Seven countries. The estimated main drivers of key macro variables resemble each other and account for a modest fraction of the real exchange rate variances. Dominant drivers of the real exchange rate are orthogonal to main drivers of business cycles, generate a significant deviation of the uncovered interest parity condition, and lead to small movements in net exports. We use these facts to evaluate international business cycle models accounting for the dynamics of both macro aggregates and the real exchange rate.

Keywords: Real exchange rate; International business cycles; Uncovered interest parity (search for similar items in EconPapers)
JEL-codes: E32 F31 (search for similar items in EconPapers)
Date: 2023-03-31
New Economics Papers: this item is included in nep-des, nep-fdg and nep-opm
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https://www.federalreserve.gov/econres/ifdp/files/ifdp1373.pdf (application/pdf)

Related works:
Working Paper: In Search of Dominant Drivers of the Real Exchange Rate (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1373

DOI: 10.17016/IFDP.2023.1373

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