Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective

Author/Editor:

Hamid Faruqee

Publication Date:

August 1, 1994

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 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. Using postwar data for the United States and Japan, cointegration analysis supports the finding that the 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. The empirical analysis also provides estimates for the underlying stochastic trend in each real exchange rate series.

Series:

Working Paper No. 1994/090

Subject:

Balance of payments Current account Exchange rate arrangements External position Foreign assets Foreign exchange Production Productivity Real effective exchange rates Real exchange rates

Notes:

Study based on postwar data for the United States and Japan. Also published in Staff Papers, Vol. 42, No. 1, March 1995.

English

Publication Date:

August 1, 1994

ISBN/ISSN:

9781451851359/1018-5941

Stock No:

WPIEA0901994

Pages:

40

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