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Accounting for the source of exchange rate movements: new evidence

Listed author(s):
  • Katie Farrant
  • Gert Peersman

This paper analyses the role of the real exchange rate in a structural vector autoregression framework for the United Kingdom, euro area, Japan and Canada versus the United States. A new identification strategy is proposed building on sign restrictions. The results are compared to the benchmark conventional approach of Clarida and Gali based on long-run zero restrictions. Although the restrictions are derived from the same theoretical model, the results are strikingly different. In contrast to the benchmark model, an important role for nominal shocks in explaining real exchange rate fluctuations is found.

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File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2005/WP269.pdf
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Paper provided by Bank of England in its series Bank of England working papers with number 269.

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Date of creation: Aug 2005
Handle: RePEc:boe:boeewp:269
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  19. Detken, Carsten & Dieppe, Alistair & Henry, Jérôme & Marin, Carmen & Smets, Frank, 2002. "Model uncertainty and the equilibrium value of the real effective euro exchange rate," Working Paper Series 0160, European Central Bank.
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