Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective

Hamid Faruqee

No 1994/090, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the long-run determinants of the real exchange rate from a stock-flow perspective. The empirical analysis estimates a long-run relationship between the real exchange rate, net foreign assets and other factors affecting trade flows. Using postwar data for the United States and Japan, cointegration analysis supports the finding that the structural factors underlying each country’s net trade and net foreign asset positions determine the long-run path for the real value of the dollar and the yen. The empirical analysis also provides estimates for the underlying stochastic trend in each real exchange rate series.

Keywords: WP; exchange rate; terms of trade; real value; real exchange rate; exchange rate movement; productivity differential; current account position; net trading position; level of significance; point estimate; time series; sustainable balance of payments position; stock variable; balance of payments equilibrium condition; Real exchange rates; Foreign assets; Productivity; Exchange rate arrangements; Current account; Western Europe; Global (search for similar items in EconPapers)
Pages: 40
Date: 1994-08-01
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Citations: View citations in EconPapers (80)

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Journal Article: Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective (1995)
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