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Accounting for real exchange rate changes at long time horizons

Author

Listed:
  • Chen, Lein-Lein
  • Choi, Seungmook
  • Devereux, John

Abstract

Engel (1999) introduced real exchange rate accounting to determine the importance of nontradables for real exchange rate movements. We extend his approach in two directions. First, we identify a potential bias in the mean squared error (MSE) measure used in previous work. Second, using the corrected MSE measure we provide new empirical evidence that nontradables explain real exchange rate movements but only at really long horizons – over decades not years.

Suggested Citation

  • Chen, Lein-Lein & Choi, Seungmook & Devereux, John, 2015. "Accounting for real exchange rate changes at long time horizons," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 264-277.
    • Handle: RePEc:eee:jmacro:v:46:y:2015:i:c:p:264-277
    DOI: 10.1016/j.jmacro.2015.09.009
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    Cited by:

    1. Erick M. Kitenge & A. K. M. Mahbub Morshed, 2020. "On Cross-Country Differences in the Contribution of Nontraded Goods to Real Exchange Rate Fluctuations," Open Economies Review, Springer, vol. 31(5), pages 1117-1145, November.

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    More about this item

    Keywords

    Purchasing power parity; Traded and nontradable prices; Real exchange rates; Mean squared error ratio;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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