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Can a Real Business Cycle Model without price and wage stickiness explain UK real exchange rate behaviour?

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Author Info

  • Meenagh, David

    ()
    (Cardiff Business School)

  • Minford, Patrick

    ()
    (Cardiff Business School)

  • Nowell, Eric
  • Sofat, Prakriti

Abstract

This paper establishes the ability of a Real Business Cycle model to account for real exchange rate behaviour, using UK data. We show that a productivity simulation is capable of explaining initial real appreciation with subsequent depreciation to a lower steady state. The model is tested by the method of indirect inference, bootstrapping the errors to generate 95% confidence limits for a time-series representation of the real exchange rate, as well as for various key data moments. The results suggest RBC models can explain real exchange rate movements.

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Bibliographic Info

Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2005/2.

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Length: 21 pages
Date of creation: Nov 2005
Date of revision: Mar 2010
Handle: RePEc:cdf:wpaper:2005/2

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Keywords: Real Exchange Rate; Productivity; Real Business Cycle; Bootstrap; Indirect Inference;

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Cited by:
  1. Meenagh, David & Minford, Patrick & Wickens, Michael, 2012. "Testing macroeconomic models by indirect inference on unfiltered data," Cardiff Economics Working Papers E2012/17, Cardiff University, Cardiff Business School, Economics Section.
  2. Davidson, James & Meenagh, David & Minford, Patrick & Wickens, Michael R., 2010. "Why crises happen - nonstationary macroeconomics," CEPR Discussion Papers 8157, C.E.P.R. Discussion Papers.

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