Real and Nominal Exchange Rates in the Long Run

June 1, 1991

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Format: Chicago

Charles Adams, and Bankim Chadha. Real and Nominal Exchange Rates in the Long Run, (USA: International Monetary Fund, 1991) accessed September 18, 2024

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 decomposes longer-run movements in (major) dollar real exchange rates into components associated with changes in nominal exchange rates and price levels, and their comovements. Though the decompositions suggest some permanent movements, they imply that there are large transitory components in real exchange rates. These transitory components in real exchange rates are found to be closely associated with those in nominal exchange rates. A stochastic version of Dornbusch’s overshooting model—configured with representative parameter values for the United States and subjected to permanent nominal shocks—can rationalize these transitory comovements of nominal and real exchange rates as well as several other features of the decompositions.

Subject: Capacity utilization, Exchange rate adjustments, Exchange rates, Foreign exchange, Production, Purchasing power parity, Real exchange rates

Keywords: Capacity utilization, Exchange rate adjustments, Exchange rate movement, Exchange rates, Nominal exchange rate, Nominal exchange rate change, Nominal exchange rate line, Price change, Price level change, Purchasing power parity, Real exchange rate, Real exchange rates, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1991/063
Stock No:

WPIEA0631991
ISBN:

9781451848328
ISSN:

1018-5941

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