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Testing the Equilibrium Exchange Rate Model - Updated

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  • Guilherme, Moura
  • Sergio, Da Silva

Abstract

We find favorable evidence for the textbook equilibrium exchange rate model of Stockman (1987) using Blanchard and Quah’s (1989) decomposition. Real shocks are shown to account for more than 90 percent of movements in the real exchange rate between Brazil and the US, and for more than half of nominal exchange rate changes. Impulse response functions also suggest that real shocks alter these countries’relative prices.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1871.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:1871

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Keywords: Equilibrium Exchange Rate Model; Blanchard and Quah’s Decomposition;

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  1. Perron, P., 1990. "Further Evidence On Breaking Trend Functions In Macroeconomics Variables," Papers 350, Princeton, Department of Economics - Econometric Research Program.
  2. Clarida, Richard & Galí, Jordi, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," CEPR Discussion Papers 951, C.E.P.R. Discussion Papers.
  3. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  4. Sergio Da Silva, 2004. "Classroom Guide to the Equilibrium Exchange Rate Model," International Finance 0405019, EconWPA.
  5. Stockman, Alan C, 1980. "A Theory of Exchange Rate Determination," Journal of Political Economy, University of Chicago Press, vol. 88(4), pages 673-98, August.
  6. Enders, Walter & Lee, Bong-Soo, 1997. "Accounting for real and nominal exchange rate movements in the post-Bretton Woods period," Journal of International Money and Finance, Elsevier, vol. 16(2), pages 233-254, April.
  7. Martin D. Evans & James R. Lothian, 1992. "The Response of Exchange Rates to Permanent and Transitory Shocks under Floating Exchange Rates," Working Papers 92-16, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. Guilherme Moura & Sergio Da Silva, 2005. "Testing the Equilibrium Exchange Rate Model," International Finance 0505018, EconWPA.
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