Long-Run Exchange Rate Modeling: A Survey of the Recent Evidence
January 1, 1995
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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.
Subject: Consumer price indexes, Currencies, Exchange rate modelling, Exchange rates, Foreign exchange, Money, Prices, Purchasing power parity, Real exchange rates
Keywords: balance of payments, Consumer price indexes, Currencies, current account, Exchange rates, further evidence, mean reversion, pound sterling, price combination, Purchasing power parity, Real exchange rates, regression equation, time series, U.S. dollar, WP
Pages:
52
Volume:
1995
DOI:
Issue:
014
Series:
Working Paper No. 1995/014
Stock No:
WPIEA0141995
ISBN:
9781451843064
ISSN:
1018-5941
Notes
Surveys recent literature on long run, or equilibrium, exchange rate modeling. Also published in Staff Papers, Vol. 42, No. 3, September 1995.
