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An eclectic approach to real exchange rate: Determination

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  • Cerveró, Susana G.

Abstract

We present a model of bilateral real exchange rate determination based on different theories that can be combined into a common statistical framework. Although eclectic, the approach is successfully used to shape a final specification which performs surprisingly well when out of sample exercises are carried out. Among the desirable features of the model there is the achievement of a high level of cross-currency consistency and the full interpretation of the coefficients from an economic point of view. Joint estimation by SURE, through the extraction of relevant interrelations among currencies, turns out to be an optimal tool to compute their historical fair values.

Suggested Citation

  • Cerveró, Susana G., 1999. "An eclectic approach to real exchange rate: Determination," Research Notes 99-6, Deutsche Bank Research.
    • Handle: RePEc:zbw:dbrrns:996
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    References listed on IDEAS

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    1. Joseph E. Gagnon, 1996. "Net foreign assets and equilibrium exchange rates: panel evidence," International Finance Discussion Papers 574, Board of Governors of the Federal Reserve System (U.S.).
    2. Hsiu-Ling Wu, 1996. "Testing for the Fundamental Determinants of the Long-Run Real Exchange Rate: The Case of Taiwan," NBER Working Papers 5787, National Bureau of Economic Research, Inc.
    3. MacDonald, Ronald, 1998. "What determines real exchange rates?: The long and the short of it," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(2), pages 117-153, June.
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    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • F3 - International Economics - - International Finance

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