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How Real Are Real Exchange Rates?

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Author Info
YOONBAI KIM

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Abstract

This paper analyzes the role of real disturbances in the real dollar exchange rates of the mark, yen and the pound both during the post-1973 float and in the long-run historical data. The results indicate dominant roles of real shocks in all three exchange rates in the post-1973 float although a substantial portion of short-run variations in the mark and yen contains monetary characteristics. In the long historical data, real shocks are far less important explaining only a small portion of nominal exchange rate movements and 50 to 80 percent of real exchange rate movements. The analysis is based on the Mundell-Fleming-Dornbusch model as the structural model and the multivariate method of time series decomposition to incorporate the long-run invariance of the real exchange rate with respect to monetary shocks. [F31, F41]

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Publisher Info
Article provided by Korean International Economic Association in its journal International Economic Journal.

Volume (Year): 11 (1997)
Issue (Month): 1 (April)
Pages: 87-108
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Handle: RePEc:taf:intecj:v:11:y:1997:i:1:p:87-108

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Diebold, Francis X & Husted, Steven & Rush, Mark, 1991. "Real Exchange Rates under the Gold Standard," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1252-71, December. [Downloadable!] (restricted)
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  2. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December. [Downloadable!] (restricted)
  3. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
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  4. Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Kim, Yoonbai, 1994. "The income and terms of trade effects: a permanent versus transitory decomposition in US trade," Journal of International Money and Finance, Elsevier, vol. 13(6), pages 658-678, December. [Downloadable!] (restricted)
  6. Lastrapes, William D, 1992. "Sources of Fluctuations in Real and Nominal Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 530-39, August. [Downloadable!] (restricted)
  7. Kim, Yoonbai, 1990. "Purchasing Power Parity in the Long Run: A Cointegration Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(4), pages 491-503, November. [Downloadable!] (restricted)
  8. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  9. Cheung, Yin-Wong & Lai, Kon S., 1993. "Long-run purchasing power parity during the recent float," Journal of International Economics, Elsevier, vol. 34(1-2), pages 181-192, February. [Downloadable!] (restricted)
  10. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
  11. Quah, Danny, 1992. "The Relative Importance of Permanent and Transitory Components: Identification and Some Theoretical Bounds," Econometrica, Econometric Society, vol. 60(1), pages 107-18, January. [Downloadable!] (restricted)
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  12. Sven W. Arndt & J. David Richardson, 1988. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Hung, Wansing & Kim, Yoonbai & Ohno, Kenichi, 1993. "Pricing exports: a cross-country study," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 3-28, February. [Downloadable!] (restricted)
  14. Evans, Martin D. D. & Lothian, James R., 1993. "The response of exchange rates to permanent and transitory shocks under floating exchange rates," Journal of International Money and Finance, Elsevier, vol. 12(6), pages 563-586, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yann Schorderet, 2003. "Asymmetric Cointegration," Cahiers du Département d'Econométrie 2003.01, Département d'Econométrie, Université de Genève. [Downloadable!]
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