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Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?

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  • Clarida, R.
  • Gali, J.

Abstract

This paper attempts to identify the sources of real exchange rate fluctuations since the collapse of the Bretton Woods period. We use a structural VAR model with recursive long-run restrictions to decompose the real exchange rate series into three components, associated with supply, demand and monetary shocks. Our estimates imply that monetary shocks account for a substantial fraction of the variability of both yen and Deutschmark real exchange rate variations against the dollar. Demand shocks appear as the largest source of real exchange rate fluctuations for all the currencies considered, while supply shocks seem to play a minor role.

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Bibliographic Info

Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 1993_25.

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Length: 53 pages
Date of creation: 1993
Date of revision:
Handle: RePEc:clu:wpaper:1993_25

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Keywords: exchange rate ; monetary policy ; money;

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References

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