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Supply Shocks and Real Exchange Rates


  • Alexius, Annika

    (Monetary Policy Department, Central Bank of Sweden)


Previous studies of the sources of real exchange rate fluctuations have concluded that real demand shocks account for the bulk of the movements in real exchange rates. In this paper, bilateral real exchange rates between the US, the UK, Germany and Japan are investigated using a statistical approach that allows for long-run equilibrium relationships between real exchange rates and the fundamental variables. The results differ from previous findings in that most long run movements in real exchange rates are due to supply shocks. This can be interpreted as empirical support for the Balassa (1964) and Samuelson (1964) relative productivity approach to real exchange rate determination.

Suggested Citation

  • Alexius, Annika, 2000. "Supply Shocks and Real Exchange Rates," Working Paper Series 117, Sveriges Riksbank (Central Bank of Sweden).
  • Handle: RePEc:hhs:rbnkwp:0117

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    References listed on IDEAS

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    More about this item


    Real exchange rates; Supply shocks;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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