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Can a pure Real Business Cycle Model explain the real exchange rate?

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Author Info
Meenagh, David () (Cardiff Business School)
Minford, Patrick () (Cardiff Business School)
Nowell, Eric
Sofat, Prakriti () (Cardiff Business School)

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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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File URL: http://www.cardiff.ac.uk/carbs/econ/workingpapers/papers/E2005_2.pdf
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Publisher 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: Apr 2008
Handle: RePEc:cdf:wpaper:2005/2

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Related research
Keywords: Real Exchange Rate Productivity Real Business Cycle Bootstrap Indirect Inference

Other versions of this item:

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
F31 - International Economics - - International Finance - - - Foreign Exchange
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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