{
  "title": "Stock Markets and the Real Exchange Rate: An Intertemporal Approach",
  "publication": "IMF Working Papers, May 1, 2003",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/stock-markets-and-the-real-exchange-rate-an-intertemporal-approach-16522",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2016/12/30/stock-markets-and-the-real-exchange-rate-an-intertemporal-approach-16522",
  "overlayPath": "/en/publications/wp/issues/2016/12/30/stock-markets-and-the-real-exchange-rate-an-intertemporal-approach-16522/index.md",
  "summary": "The paper presents an N-country model with stock markets, in which a closed-form solution for the real exchange rate is derived. Risky asset prices and allocation of risky assets among countries are determined endogenously.",
  "sections": [
    {
      "heading": "Overview and model",
      "content": "- Presents an N-country model with stock markets and derives a closed-form solution for the real exchange rate.\n- Risky asset prices and allocation of risky assets among countries are determined endogenously within the model.\n- Framework permits analysis of how fundamental parameters affect the real exchange rate, including:\n  - the variance and covariance of the risky assets;\n  - demographic variables."
    },
    {
      "heading": "Key findings and predictions",
      "content": "- The model links stock-market outcomes and real exchange rate determination through endogenous asset pricing and international allocation of risky assets.\n- Allows assessment of the sensitivity of the real exchange rate to:\n  - variance of risky assets;\n  - covariance of risky assets;\n  - demographic variables.\n- Contrasts the model’s predictions with the Balassa-Samuelson effect."
    },
    {
      "heading": "Comparative analysis with the Balassa-Samuelson effect",
      "content": "- The paper explicitly contrasts the model’s predictions for the real exchange rate with those implied by the Balassa-Samuelson effect."
    },
    {
      "heading": "Transmission channels, policy-relevant mechanisms, and extensions",
      "content": "- Identifies a new transmission channel of the real exchange rate for parameters such as:\n  - income on net foreign assets;\n  - risk aversion;\n  - risk-hedging opportunities.\n- Explores how risk-hedging opportunities and risk-aversion influence asset allocation and hence the real exchange rate."
    },
    {
      "heading": "Subjects and keywords",
      "content": "- Subjects: Asset prices, Exchange rates, Financial markets, Foreign exchange, Prices, Production, Productivity, Real exchange rates, Stock markets\n- Keywords: Asset prices, Balassa-Samuelson effect, exchange rate volatility, Exchange rates, market valuation, present discounted value, Productivity, Real exchange rate, Real exchange rates, risk-hedging benefit, risk-hedging opportunity, risky assets, stock markets, WP\n\nSource: IMF Working Paper — Benoît Mercereau, \"Stock Markets and the Real Exchange Rate: An Intertemporal Approach\", Working Paper No. 2003/109, May 1, 2003.\n\n---\n\n Content in this bundle\n\n- Stock Markets and the Real Exchange Rate: An Interemporal Approach - WP/03/109\n  - Stock Markets and the Real Exchange Rate: An Interemporal Approach - WP/03/109 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Stock Markets and the Real Exchange Rate: An Interemporal Approach - WP/03/109 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/stock-markets-and-the-real-exchange-rate-an-intertemporal-approach-16522"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2016/12/30/stock-markets-and-the-real-exchange-rate-an-intertemporal-approach-16522/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2016/12/30/stock-markets-and-the-real-exchange-rate-an-intertemporal-approach-16522/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2016/12/30/stock-markets-and-the-real-exchange-rate-an-intertemporal-approach-16522/bundle-manifest.json)",
    "Authors: Benoît Mercereau",
    "Published: May 1, 2003",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451853230.001",
    "Presents an N-country model with stock markets and derives a closed-form solution for the real exchange rate.",
    "Risky asset prices and allocation of risky assets among countries are determined endogenously within the model.",
    "Framework permits analysis of how fundamental parameters affect the real exchange rate, including:",
    "The model links stock-market outcomes and real exchange rate determination through endogenous asset pricing and international allocation of risky assets.",
    "Allows assessment of the sensitivity of the real exchange rate to:",
    "Contrasts the model’s predictions with the Balassa-Samuelson effect.",
    "The paper explicitly contrasts the model’s predictions for the real exchange rate with those implied by the Balassa-Samuelson effect.",
    "Identifies a new transmission channel of the real exchange rate for parameters such as:",
    "Explores how risk-hedging opportunities and risk-aversion influence asset allocation and hence the real exchange rate.",
    "Subjects: Asset prices, Exchange rates, Financial markets, Foreign exchange, Prices, Production, Productivity, Real exchange rates, Stock markets",
    "Keywords: Asset prices, Balassa-Samuelson effect, exchange rate volatility, Exchange rates, market valuation, present discounted value, Productivity, Real exchange rate, Real exchange rates, risk-hedging benefit, risk-hedging opportunity, risky assets, stock markets, WP",
    "**Stock Markets and the Real Exchange Rate: An Interemporal Approach - WP/03/109**"
  ],
  "related": [
    {
      "title": "Stock Markets and the Real Exchange Rate: An Interemporal Approach - WP/03/109",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2003/_wp03109.pdf",
      "summary": {
        "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2003/_wp03109.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2003/_wp03109.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2016/12/30/stock-markets-and-the-real-exchange-rate-an-intertemporal-approach-16522/index.md",
    "json": "/en/publications/wp/issues/2016/12/30/stock-markets-and-the-real-exchange-rate-an-intertemporal-approach-16522/index.json",
    "bundleManifest": "/en/publications/wp/issues/2016/12/30/stock-markets-and-the-real-exchange-rate-an-intertemporal-approach-16522/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-17T07:34:50.074Z"
}