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Real Exchange Rate Overshooting RBC Style

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

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5029.

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Date of creation: Apr 2005
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Handle: RePEc:cpr:ceprdp:5029
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  18. Correia, I. & Rabelo, S. & Naves, J.C., 1994. "Business Cycles in a Small Open Economy," RCER Working Papers 382, University of Rochester - Center for Economic Research (RCER).
  19. Ellen R. McGrattan, 1991. "The macroeconomic effects of distortionary taxation," Discussion Paper / Institute for Empirical Macroeconomics 37, Federal Reserve Bank of Minneapolis.
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