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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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