Explaining long term exchange rate behavior in the United States and Japan
AbstractConventional exchange rate models are based on the fundamental hypothesis that, in the long run, real exchange rates will move in such a way as to make countries equally competitive. Thus they assume that in the long run, trade between countries will be roughly balanced. The difficulty in assessing expectations about the consequences of trade arrangements (such as NAFTA or the EEC), is that these models perform quite poorly at an empirical level, making them an unreliable guide to economic policy. To have a sound foundation for economic policy requires operating from a theoretically grounded explanation of exchange rates that works well across a spectrum of developed and developing countries. This paper applies the theoretical and empirical foundation developed in Shaikh (1980,1991,1995), and previously applied to Spain, Mexico and Greece (Roman 1997, Ruiz-Napoles 1996, Antonopoulos 1997), to the explanation of the exchange rates of the United States and Japan. Such a framework implies that it is a country's competitive position, as measured by the real unit costs of its tradables, which determines its real exchange rate. This determination of real exchange rates through real unit costs provides a possible explanation for why trade imbalances remain persistent, as well as a policy rule-of-thumb for sustainable exchange rates. The aim is to show that a theoretically grounded, empirically robust, explanation of real exchange rate movements can be constructed that also can be of practical use to researchers and policy makers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 9809011.
Length: 30 pages
Date of creation: 25 Sep 1998
Date of revision:
Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on PostScript; pages: 30; figures: included
Contact details of provider:
Web page: http://22.214.171.124
Other versions of this item:
- Anwar M. Shaikh & Rania Antonopoulos, 1998. "Explaining Long-Term Exchange Rate Behavior in the United States and Japan," Economics Working Paper Archive wp_250, Levy Economics Institute, The.
- E - Macroeconomics and Monetary Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-12-09 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sven W. Arndt & J. David Richardson, 1988. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
- Rudiger Dornbusch, 1990.
"Real Exchange Rates and Macroeconomics: A Selective Survey,"
NBER Working Papers
2775, National Bureau of Economic Research, Inc.
- Dornbusch, Rudiger, 1989. " Real Exchange Rates and Macroeconomics: A Selective Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(2), pages 401-32.
- Kenneth A. Froot & Kenneth Rogoff, 1996.
"Perspectives on PPP and Long-Run Real Exchange Rates,"
NBER Working Papers
4952, National Bureau of Economic Research, Inc.
- Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier.
- Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
- Anwar Shaikh, 1999.
"Real Exchange Rates and the International Mobility of Capital,"
- Anwar M. Shaikh, 1999. "Real Exchange Rates and the International Mobility of Capital," Economics Working Paper Archive wp_265, Levy Economics Institute, The.
- Anwar M. Shaikh, . "Explaining the U.S. Trade Deficit," Economics Policy Note Archive 00-1, Levy Economics Institute, The.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.