Supply Shocks and Real Exchange Rates

Annika Alexius ()

No 117, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: Previous studies of the sources of real exchange rate fluctuations have concluded that real demand shocks account for the bulk of the movements in real exchange rates. In this paper, bilateral real exchange rates between the US, the UK, Germany and Japan are investigated using a statistical approach that allows for long-run equilibrium relationships between real exchange rates and the fundamental variables. The results differ from previous findings in that most long run movements in real exchange rates are due to supply shocks. This can be interpreted as empirical support for the Balassa (1964) and Samuelson (1964) relative productivity approach to real exchange rate determination.

Keywords: Real exchange rates; Supply shocks (search for similar items in EconPapers)
JEL-codes: E50 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2000-12-01
New Economics Papers: this item is included in nep-cba and nep-ifn
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Published in Journal of Monetary Economics, 2005, pages 555-566.

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