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Long-Run Exchange Rate Modeling; A Survey of the Recent Evidence

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  • Ronald MacDonald

Abstract

In this paper we survey the recent literature on long run, or equilibrium, exchange rate modeling. In particular, we review the voluminous literature which tests for a unit root in real exchange rates and the closely related work on testing for a unit root in the residual from a regression of the nominal exchange rate on relative prices. We argue that the balance of evidence is supportive of the existence of some form of long-run exchange rate relationship. The form of this relationship, however, does not accord exactly with a traditional representation of the long-run exchange rate. We offer some potential explanations for this lack of conformity.

Suggested Citation

  • Ronald MacDonald, 1995. "Long-Run Exchange Rate Modeling; A Survey of the Recent Evidence," IMF Working Papers 95/14, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:95/14
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