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Long-Run Exchange Rate Dynamics

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  • Karl Friedrich Habermeier
  • Mario Mesquita
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    Abstract

    Long-run movements of real exchange rates are studied using a panel data set comprising 51 economies. The purchasing power parity hypothesis (PPP) is examined first using unit root tests. It is found that PPP does not hold for the full sample of countries, but it may hold for the advanced economies, as well as open and high-inflation economies. Using the recently developed mean group and pooled mean group estimators, the paper finds support for the Balassa-Samuelson hypothesis in both advanced and developing economies; and for the influence of shifts in the terms of trade.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=2984
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/50.

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    Length: 25
    Date of creation: 01 Apr 1999
    Date of revision:
    Handle: RePEc:imf:imfwpa:99/50

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    Cited by:
    1. Jakub Borowski & Michal Brzoza- Brzezina, 2004. "Designing Poland’s Macroeconomic Strategy on the Way to the Euro Area," Macroeconomics 0404015, EconWPA.
    2. Kenneth W Clements & Yihui Lan & John Roberts, 2007. "Exchange-Rate Economics for the Resources Sector," Economics Discussion / Working Papers 07-13, The University of Western Australia, Department of Economics.
    3. Gour Gobinda Goswami & Sadaquat Junayed, 2006. "Pooled Mean Group Estimation of the Bilateral Trade Balance Equation: USA vis-a-vis her Trading Partners," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(4), pages 515-526.
    4. Roland Craigwell & Kevin Greenidge & Harold Codrington & DeLisle Worrell, 2003. "Economic Resilience with An Exchange Rate Peg," IMF Working Papers 03/168, International Monetary Fund.
    5. Dungey, Mardi, 2004. "Identifying terms of trade effects in real exchange rate movements: evidence from Asia," Journal of Asian Economics, Elsevier, vol. 15(2), pages 217-235, April.

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