Real Exchange Rates and Time-Varying Trade Costs

Efthymios Pavlidis, Ivan Paya () and David Peel

No 600537, Working Papers from Lancaster University Management School, Economics Department

Abstract: Previous empirical work on the Purchasing Power Parity does not explicitly account for time-varying trade costs. Motivated by the recent gravity literature we incorporate a microfounded measure of trade costs into two nonlinear regression models for the real exchange rate. Using data for the dollar-sterling real exchange rate from 1830 to 2005, we provide significant evidence in favor of a positive relation between the level of trade costs and the degree of persistence of the real exchange rate.

Keywords: Real Exchange Rates; Time-Varying Trade Costs; Smooth TransitionNonlinearity; Persistence; Simulation Methods (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Real exchange rates and time-varying trade costs (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:lan:wpaper:600537

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