{
  "title": "Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective",
  "publication": "IMF Working Papers, August 1, 1994",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/long-run-determinants-of-the-real-exchange-rate-a-stock-flow-perspective-1305",
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  "summary": "This paper examines the long-run determinants of the real exchange rate from a stock-flow perspective. The empirical analysis estimates a long-run relationship between the real exchange rate, net foreign assets and other factors affecting trade flows.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Paper examines the long-run determinants of the real exchange rate from a stock-flow perspective.\n- Empirical analysis estimates a long-run relationship between the real exchange rate, net foreign assets and other factors affecting trade flows.\n- Using postwar data for the United States and Japan, cointegration analysis supports the finding that structural factors underlying each country’s net trade and net foreign asset positions determine the long-run path for the real value of the dollar and the yen.\n- Empirical analysis also provides estimates for the underlying stochastic trend in each real exchange rate series."
    },
    {
      "heading": "Empirical approach and methodology",
      "content": "- Framework: stock-flow perspective linking real exchange rate to net foreign assets and trade-flow determinants.\n- Econometric method: cointegration analysis to estimate long-run relationships and underlying stochastic trends.\n- Data scope: postwar data for the United States and Japan."
    },
    {
      "heading": "Key findings",
      "content": "- Structural factors underlying net trade and net foreign asset positions determine the long-run path for the real value of the dollar and the yen.\n- Cointegration analysis supports a stable long-run relationship between:\n  - the real exchange rate,\n  - net foreign assets,\n  - other factors affecting trade flows.\n- The empirical analysis yields estimates for the underlying stochastic trend in each real exchange rate series."
    },
    {
      "heading": "Subject coverage and keywords",
      "content": "- Subjects: Balance of payments; Current account; Exchange rate arrangements; External position; Foreign assets; Foreign exchange; Production; Productivity; Real effective exchange rates; Real exchange rates.\n- Keywords: balance of payments equilibrium condition; Current account; current account position; exchange rate; Exchange rate arrangements; exchange rate movement; Foreign assets; Global; level of significance; net trading position; point estimate; Productivity; productivity differential; real exchange rate; Real exchange rates; real value; stock variable; sustainable balance of payments position; terms of trade; time series; Western Europe; WP.\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/long-run-determinants-of-the-real-exchange-rate-a-stock-flow-perspective-1305"
    }
  ],
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    "[Markdown version](/en/publications/wp/issues/2016/12/30/long-run-determinants-of-the-real-exchange-rate-a-stock-flow-perspective-1305/index.md)",
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    "Authors: Hamid Faruqee",
    "Published: August 1, 1994",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451851359.001",
    "Paper examines the long-run determinants of the real exchange rate from a stock-flow perspective.",
    "Empirical analysis estimates a long-run relationship between the real exchange rate, net foreign assets and other factors affecting trade flows.",
    "Using postwar data for the United States and Japan, cointegration analysis supports the finding that structural factors underlying each country’s net trade and net foreign asset positions determine the long-run path for the real value of the dollar and the yen.",
    "Empirical analysis also provides estimates for the underlying stochastic trend in each real exchange rate series.",
    "Framework: stock-flow perspective linking real exchange rate to net foreign assets and trade-flow determinants.",
    "Econometric method: cointegration analysis to estimate long-run relationships and underlying stochastic trends.",
    "Data scope: postwar data for the United States and Japan.",
    "Structural factors underlying net trade and net foreign asset positions determine the long-run path for the real value of the dollar and the yen.",
    "Cointegration analysis supports a stable long-run relationship between:",
    "The empirical analysis yields estimates for the underlying stochastic trend in each real exchange rate series.",
    "Subjects: Balance of payments; Current account; Exchange rate arrangements; External position; Foreign assets; Foreign exchange; Production; Productivity; Real effective exchange rates; Real exchange rates.",
    "Keywords: balance of payments equilibrium condition; Current account; current account position; exchange rate; Exchange rate arrangements; exchange rate movement; Foreign assets; Global; level of significance; net trading position; point estimate; Productivity; productivity differential; real exchange rate; Real exchange rates; real value; stock variable; sustainable balance of payments position; terms of trade; time series; Western Europe; WP."
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