What Determines Real Exchange Rates? The Long and Short of it

Ronald MacDonald

No 1997/021, IMF Working Papers from International Monetary Fund

Abstract: This paper presents a reduced-form model of the real exchange rate. Using multilateral cointegration methods, the model is implemented for the real effective exchange rates of the dollar, the mark, and the yen, over the period 1974-1993. In contrast to much other research using real exchange rates, there is evidence of significant and sensible long-run relationships for a simplified version as well as for the full version of the model. The estimated long-run relationships are used to produce dynamic equations, which outperform a random walk and produce sensible dynamic patterns in the context of an impulse response analysis.

Keywords: WP; interest rate; random walk; equilibrium exchange rate; single currency; price level; single-equation adjustment speed; dynamics in response; short-run exchange rate dynamics; exchange rate depreciation; real exchange rate; short interest; critical value; long-run exchange rate relationship; Real exchange rates; Exchange rates; Currencies; Real interest rates; Real effective exchange rates (search for similar items in EconPapers)
Pages: 53
Date: 1997-02-01
References: Add references at CitEc
Citations: View citations in EconPapers (165)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=2127 (application/pdf)

Related works:
Journal Article: What determines real exchange rates?: The long and the short of it (1998)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1997/021

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().