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What Determines Real Exchange Rates? The Long and Short of it
Author:
Mr. Ronald MacDonald null

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Series:
IMF Working Papers
Volume/Issue:
Volume 1997: Issue 021
Language:
English
Publication Date:
01 Feb 1997
DOI:
https://doi.org/10.5089/9781451921670.001
ISBN:
9781451921670
ISSN:
1018-5941
Pages:
53
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
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund