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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
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Handle: RePEc:gla:glaewp:2001_6
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  1. Engel, Charles, 2000. "Long-run PPP may not hold after all," Journal of International Economics, Elsevier, vol. 51(2), pages 243-273, August.
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  6. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "A panel project on purchasing power parity: Mean reversion within and between countries," Journal of International Economics, Elsevier, vol. 40(1-2), pages 209-224, February.
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  18. Ronald MacDonald, 1997. "What Determines Real Exchange Rates? The Long and Short of it," IMF Working Papers 97/21, International Monetary Fund.
  19. repec:cup:cbooks:9780521023450 is not listed on IDEAS
  20. Ariel T. Burstein & Joao C. Neves & Sergio Rebelo, 2000. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based-Stabilizations," NBER Working Papers 7862, National Bureau of Economic Research, Inc.
  21. Graciela L. Kaminsky & Michael 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.).
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