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Real Exchange Rates in the Long Run: Evidence from Historical Data

  • Anton Muscatelli
  • Franco Spinelli
  • Carmine Trecroci

We present empirical evidence on the forces driving real exchange rates in the longrun. Using data from three industrialised countries, we find support for the hypothesis that productivity and fiscalshocks matter. There is also evidence, however, that the impact of fiscal shocks only matters in the short and medium-run. In some cases fiscal shocks cause depreciations, and this is probably explained by the monetary accomodation of fiscal shocks. The traditional Harrod-Balassa-Samuelson effect of productivity on real exchange rates is also found to be reversed in some cases, which demonstrates the importance of the distributive sector in driving productivity gains.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2001_6.

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Date of creation: Jul 2001
Date of revision:
Handle: RePEc:gla:glaewp:2001_6
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  1. Menzie David Chinn, 1997. "Sectoral Productivity, Government Spending and Real Exchange Rates: Empirical Evidence for OECD Countries," NBER Working Papers 6017, National Bureau of Economic Research, Inc.
  2. Graciela L. Kaminsky & Michael W. Klein, 1994. "The real exchange rate and fiscal policy during the gold standard period: evidence from the United States and Great Britain," International Finance Discussion Papers 482, Board of Governors of the Federal Reserve System (U.S.).
  3. Engel, C., 1996. "Long-Run PPP May Not Hold After All," Working Papers 96-05, University of Washington, Department of Economics.
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  17. Fratianni,Michele & Spinelli,Franco, 2005. "A Monetary History of Italy," Cambridge Books, Cambridge University Press, number 9780521023450.
  18. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
  19. Lee, J. & Chinn, M.D., 1998. "The Current Account and the Real Exchange Rate: A Structural VAR Analysis of Major Currencies," Papers 97-98-17, California Irvine - School of Social Sciences.
  20. Devereux, Michael B, 1999. "Real Exchange Rate Trends and Growth: A Model of East Asia," Review of International Economics, Wiley Blackwell, vol. 7(3), pages 509-21, August.
  21. Abuaf, Niso & Jorion, Philippe, 1990. " Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 45(1), pages 157-74, March.
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  24. Jon Faust, 1998. "The robustness of identified VAR conclusions about money," International Finance Discussion Papers 610, Board of Governors of the Federal Reserve System (U.S.).
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