Long-Run Exchange Rate Modeling: A Survey of the Recent Evidence

Ronald MacDonald

No 1995/014, IMF Working Papers from International Monetary Fund

Abstract: In this paper we survey the recent literature on long run, or equilibrium, exchange rate modeling. In particular, we review the voluminous literature which tests for a unit root in real exchange rates and the closely related work on testing for a unit root in the residual from a regression of the nominal exchange rate on relative prices. We argue that the balance of evidence is supportive of the existence of some form of long-run exchange rate relationship. The form of this relationship, however, does not accord exactly with a traditional representation of the long-run exchange rate. We offer some potential explanations for this lack of conformity.

Keywords: WP; U.S. dollar; balance of payments; current account; mean reversion; pound sterling; time series; regression equation; further evidence; price combination; Real exchange rates; Exchange rates; Purchasing power parity; Currencies; Consumer price indexes (search for similar items in EconPapers)
Pages: 52
Date: 1995-01-01
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Citations: View citations in EconPapers (116)

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Journal Article: Long-Run Exchange Rate Modeling: A Survey of the Recent Evidence (1995)
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