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Real Exchange Rates and Fundamentals: A Cross-Country Perspective

Author/Editor: Ricci, Luca Antonio | Milesi-Ferretti, Gian Maria | Lee, Jaewoo
Authorized for Distribution: January 1, 2008
Electronic Access: Free Full Text (PDF file size is 316KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper employs newly constructed measures for productivity differentials, external imbalances, and commodity terms of trade to estimate a panel cointegrating relationship between real exchange rates and a set of fundamentals for a sample of 48 industrial countries and emerging markets. It finds evidence of a strong positive relation between the CPI-based real exchange rate and commodity terms of trade. The estimated impact of productivity growth differentials between traded and nontraded goods, while statistically significant, is small. Increases in net foreign assets and in government consumption tend to be associated with appreciating real exchange rates.
 
Series: Working Paper No. 08/13
Subject(s): Real effective exchange rates | Productivity | Trade
Author's keyword(s): Equilibrium real exchange rate | Balassa-Samuelson effect
 
English  
    Published:   January 1, 2008        
            Format:   Paper
    Stock No:   WPIEA2008013   Pages:   25
    Price:   US$18.00
       
     
Please address any questions about this title to publications@imf.org.