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Real Exchange Rate Overshooting RBC Style

Author

Listed:
  • Meenagh, David
  • Minford, Patrick
  • Nowell, Eric
  • Sofat, Prakriti

Abstract

This paper establishes the ability of a Real Business Cycle model to account for real exchange rate (RXR) behaviour, using UK experience as empirical focus. We show that a productivity burst simulation is capable of explaining the appreciation of RXR and its cyclical pattern observed in the data. We then test if our model is consistent with the facts. We bootstrap our model to generate pseudo RXR series and check if the ARIMA parameters estimated for the data lie within 95% confidence limits implied by our model. We find that RXR behaviour is explicable within an RBC framework.

Suggested Citation

  • Meenagh, David & Minford, Patrick & Nowell, Eric & Sofat, Prakriti, 2005. "Real Exchange Rate Overshooting RBC Style," CEPR Discussion Papers 5029, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5029
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    References listed on IDEAS

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    Cited by:

    1. Patrick Minford & Konstantinos Theodoridis & David Meenagh, 2009. "Testing a Model of the UK by the Method of Indirect Inference," Open Economies Review, Springer, pages 265-291.

    More about this item

    Keywords

    productivity; real business cycle; real exchange rate;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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