Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries

Author/Editor:

Louis Dorrance Johnston ; Menzie David Chinn

Publication Date:

May 1, 1997

Electronic Access:

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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:

We investigate the long-run relationship between the real exchange rate, traded and nontraded productivity levels, and government spending for 14 OECD countries, using recently developed panel cointegration tests. The results indicate that under certain assumptions it is easier to detect cointegration in panel data than in the available time series; moreover, the rate of reversion to long-run equilibrium is estimated with greater precision. Using the model augmented by oil prices, we find that in 1991 (the last year productivity data are available) there is less overvaluation of the U.S. dollar than that implied by a naive version of purchasing power parity.

Series:

Working Paper No. 1997/066

Subject:

Exchange rates Foreign exchange Production Productivity Purchasing power parity Real exchange rates Total factor productivity

English

Publication Date:

May 1, 1997

ISBN/ISSN:

9781451962161/1018-5941

Stock No:

WPIEA0661997

Pages:

32

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