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Real Exchange Rates and Fundamentals: Evidence from 15 OECD Countries

  • Annika Alexius
  • Jonny Nilsson

In an extended Balassa–Samuelson model, long-run real exchange rates are determined by relative productivity and terms of trade. We present evidence of systematic long-run relationships between these fundamental variables and real exchange rates in a data set covering 15 OECD countries from 1960 to 1996. High relative productivity is associated with real exchange rate appreciations in most cases. There is less support for the hypothesis that the terms of trade affect equilibrium real exchange rates. Copyright Kluwer Academic Publishers 2000

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Article provided by Springer in its journal Open Economies Review.

Volume (Year): 11 (2000)
Issue (Month): 4 (October)
Pages: 383-397

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Handle: RePEc:kap:openec:v:11:y:2000:i:4:p:383-397
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  7. Menzie Chinn & Louis Johnston, 1996. "Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries," NBER Working Papers 5709, National Bureau of Economic Research, Inc.
  8. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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  12. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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