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Real Exchange Rates and Fundamentals

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Author Info

  • Luca Antonio Ricci
  • Jaewoo Lee
  • Gian-Maria Milesi-Ferretti

Abstract

This paper employs newly constructed measures for productivity differentials, external imbalances, and commodity terms of trade to estimate a panel cointegrating relationship between real exchange rates and a set of fundamentals for a sample of 48 industrial countries and emerging markets. It finds evidence of a strong positive relation between the CPI-based real exchange rate and commodity terms of trade. The estimated impact of productivity growth differentials between traded and nontraded goods, while statistically significant, is small. Increases in net foreign assets and in government consumption tend to be associated with appreciating real exchange rates.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/13.

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Length: 25
Date of creation: 01 Jan 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/13

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Related research

Keywords: Real effective exchange rates; Productivity; Trade; exchange rate; exchange rates; real exchange rate; net foreign assets; foreign assets; real exchange rates; real effective exchange rate; effective exchange rate; foreign asset; net foreign asset; equilibrium exchange rate; exchange rate behavior; trade liberalization; effective exchange rates; trade restrictions; real exchange rate behavior; exchange rate appreciation; international financial; international financial integration; nominal exchange rate; exchange rate dynamics; net foreign asset position; global integration; trade shocks; exchange rate policy; real exchange rate dynamics; exchange rate misalignment; equilibrium ? exchange rate; foreign asset position; real exchange rate appreciation; multiple exchange rate; capital flows; international finance;

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References

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