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Model Trending Real Exchange Rates

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  • Obstfeld, Maurice

Abstract

The multilateral real exchange rates of major industrial countries often contain deterministic time trends. This note develops a simple stochastic model of a small open economy with a deterministically trending real exchange rate. Real exchange rate trends are caused by differential productivity growth in tradables and nontradables. Although the model assumes complete price flexibility, it can produce a correlation between the real exchange rate and the international real interest-rate differential similar to the one that arises in sticky-price overshooting models dominated by monetary shocks.

Suggested Citation

  • Obstfeld, Maurice, 1993. "Model Trending Real Exchange Rates," Center for International and Development Economics Research (CIDER) Working Papers 233187, University of California-Berkeley, Department of Economics.
  • Handle: RePEc:ags:ucbewp:233187
    DOI: 10.22004/ag.econ.233187
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    References listed on IDEAS

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    1. Frankel, Jeff & Phillips, Steve & Chinn, Menzie, 1992. "Financial and Currency Integration in the European Monetary System: The Statistical Record," Center for International and Development Economics Research (CIDER) Working Papers 233177, University of California-Berkeley, Department of Economics.
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    4. Maurice Obstfeld., 1993. "Model Trending Real Exchange Rates," Center for International and Development Economics Research (CIDER) Working Papers C93-011, University of California at Berkeley.
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    More about this item

    Keywords

    Research Methods/ Statistical Methods;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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