Long-Run Exchange Rate Modeling : A Survey of the Recent Evidence

Author/Editor:

Ronald MacDonald

Publication Date:

January 1, 1995

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:

In this paper we survey the recent literature on long run, or equilibrium, exchange rate modeling. In particular, we review the voluminous literature which tests for a unit root in real exchange rates and the closely related work on testing for a unit root in the residual from a regression of the nominal exchange rate on relative prices. We argue that the balance of evidence is supportive of the existence of some form of long-run exchange rate relationship. The form of this relationship, however, does not accord exactly with a traditional representation of the long-run exchange rate. We offer some potential explanations for this lack of conformity.

Series:

Working Paper No. 95/14

Subject:

Notes:

Surveys recent literature on long run, or equilibrium, exchange rate modeling. Also published in Staff Papers, Vol. 42, No. 3, September 1995.

English

Publication Date:

January 1, 1995

ISBN/ISSN:

9781451843064/1018-5941

Stock No:

WPIEA0141995

Format:

Paper

Pages:

52

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