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The long-run determination of the real exchange rate. Evidence from an intertemporal modelling framework using the dollar-pound exchange rate

Author

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  • Ioannis Litsios

    (University of Bradford)

  • Keith Pilbeam

    (City, University of London)

Abstract

This paper develops a model of optimal choice over an array of different assets, including domestic and foreign bonds, domestic and foreign equities and domestic and foreign real money balances to examine the determination of the real exchange rate in the long-run. The model is tested empirically using data from the UK and the USA. The results show that all the coefficients of the model are right signed and significant and consequently financial assets may play a significant role in the determination of the real exchange rate.

Suggested Citation

  • Ioannis Litsios & Keith Pilbeam, 2017. "The long-run determination of the real exchange rate. Evidence from an intertemporal modelling framework using the dollar-pound exchange rate," Open Economies Review, Springer, vol. 28(5), pages 1011-1028, November.
    • Handle: RePEc:kap:openec:v:28:y:2017:i:5:d:10.1007_s11079-017-9467-7
    DOI: 10.1007/s11079-017-9467-7
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    Cited by:

    1. Ioannis Litsios & Keith Pilbeam, 2019. "The Role Of National Debts In The Determination Of The Yen‐Dollar Exchange Rate," Economic Inquiry, Western Economic Association International, vol. 57(2), pages 1182-1195, April.
    2. Kimolo, Deogratius & Mrema, Stanislaus, 2019. "Real Exchange Rate Misalignments in Tanzania," MPRA Paper 114672, University Library of Munich, Germany.

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    More about this item

    Keywords

    Real exchange rate; Intertemporal model; Asset prices; Vector Error Correction Model;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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