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Real Exchange Rate Levels, Productivity and Demand Shocks

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  • Louis Dorrance Johnston
  • Menzie David Chinn

Abstract

We investigate the long-run relationship between the real exchange rate, traded and nontraded productivity levels, and government spending for 14 OECD countries, using recently developed panel cointegration tests. The results indicate that under certain assumptions it is easier to detect cointegration in panel data than in the available time series; moreover, the rate of reversion to long-run equilibrium is estimated with greater precision. Using the model augmented by oil prices, we find that in 1991 (the last year productivity data are available) there is less overvaluation of the U.S. dollar than that implied by a naive version of purchasing power parity.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 97/66.

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Length: 32
Date of creation: 01 May 1997
Date of revision:
Handle: RePEc:imf:imfwpa:97/66

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Cited by:
  1. Nagayasu, Jun & Inakura, Noriko, 2009. "PPP: Further evidence from Japanese regional data," International Review of Economics & Finance, Elsevier, Elsevier, vol. 18(3), pages 419-427, June.
  2. Vasily Astrov, 2005. "Sectoral Productivity, Demand, and Terms of Trade: What Drives the Real Appreciation of the East European Currencies?," wiiw Working Papers, The Vienna Institute for International Economic Studies, wiiw 34, The Vienna Institute for International Economic Studies, wiiw.
  3. José García Solanes & Fernando Torrejón Flores, 2005. "Testing the BalassA-Samuelson hypothesis in two different groups of countries: OECD and Latin America," Working Papers, Asociación Española de Economía y Finanzas Internacionales 05-02, Asociación Española de Economía y Finanzas Internacionales.
  4. Rafael Puyana Martínez-Villaba, . "El efecto Balassa-Samuelson en Colombia," Borradores de Economia 630, Banco de la Republica de Colombia.
  5. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2011. "Does Euro or Dollar Pegging Impact the Real Exchange Rate? The Case of Oil and Commodity Currencies," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 34(9), pages 1557-1592, 09.
  6. Rafael Puyana, 2010. "El efecto Balassa-Samuelson en Colombia," BORRADORES DE ECONOMIA 007801, BANCO DE LA REPÚBLICA.
  7. Alessio Emanuele BIONDO, 2010. "The Law of One Price: Survey of a Failure," Theoretical and Practical Research in Economic Fields, ASERS Publishing, ASERS Publishing, vol. 0(2), pages 168 - 182, December.
  8. Strauss, Jack, 1999. "Productivity differentials, the relative price of non-tradables and real exchange rates," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(3), pages 383-409.
  9. Brissimis, Sophocles N. & Kamberoglou, Nicos C. & Simigiannis, George T., 2001. "Is there a bank lending channel of monetary policy in Greece? Evidence from bank level data," Working Paper Series, European Central Bank 0104, European Central Bank.
  10. Rafael Puyana Martínez-Villalba, 2011. "El efecto Balassa-Samuelson en Colombia," DOCUMENTOS CEDE, UNIVERSIDAD DE LOS ANDES-CEDE 007959, UNIVERSIDAD DE LOS ANDES-CEDE.

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