How to order
IMF Publications

Working Papers in full text
2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 All


Other research-related activities and publications of the IMF can be found at IMF Research

Free Email Notification

Receive emails when we post new items of interest to you.

Subscribe or Modify your profile



Can International Macroeconomic Models Explain Low-Frequency Movements of Real Exchange Rates?

Author/Editor: Rabanal, Pau | Rubio-Ramirez, Juan F.
Authorized for Distribution: January 1, 2012
Electronic Access: Free Full Text (PDF file size is 1,127KB)
Use the free Adobe Acrobat Reader to view this PDF file.
 
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: Real exchange rates exhibit important low-frequency fluctuations. This makes the analysis of real exchange rates at all frequencies a more sound exercise than the typical business cycle one, which compares actual and simulated data after the Hodrick-Prescott filter is applied to both. A simple two-country, two-good model, as described in Heathcote and Perri (2002), can explain the volatility of the real exchange rate when all frequencies are studied. The puzzle is that the model generates too much persistence of the real exchange rate instead of too little, as the business cycle analysis asserts. Finally, we show that the introduction of adjustment costs in production and in portfolio holdings allows us to reconcile theory and this feature of the data.
 
Order a print copy
Series: Working Paper No. 12/13
Subject(s): Business cycles | Economic models | Real effective exchange rates
Author's keyword(s): International Business Cycles | Spectrum | Real Exchange Rates | Cointegration.
 
English  
    Published:   January 1, 2012        
            Format:   Paper
    Stock No:   WPIEA2012013   Pages:   41
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
Please address any questions about this title to publications@imf.org.