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What Determines Real Exchange Rates? The Long and Short of It


Ronald MacDonald


University of Strathclyde in Glasgow - Department of Economics; Government of New Zealand - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

January 1997

IMF Working Paper No. 97/21

Abstract:     
This paper presents a reduced-form model of the real exchange rate. Using multilateral cointegration methods, the model is implemented for the real effective exchange rates of the dollar, the mark, and the yen, over the period 1974-1993. In contrast to much other research using real exchange rates, there is evidence of significant and sensible long-run relationships for a simplified version as well as for the full version of the model. The estimated long-run relationships are used to produce dynamic equations, which outperform a random walk and produce sensible dynamic patterns in the context of an impulse response analysis.

Number of Pages in PDF File: 53

JEL Classification: F31, F32

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Date posted: February 15, 2006  

Suggested Citation

MacDonald, Ronald, What Determines Real Exchange Rates? The Long and Short of It (January 1997). IMF Working Paper, Vol. , pp. 1-53, 1997. Available at SSRN: http://ssrn.com/abstract=882249

Contact Information

Ronald R. MacDonald (Contact Author)
University of Strathclyde in Glasgow - Department of Economics ( email )
100 Cathedral Street
Glasgow G4 0LN
United Kingdom
+44 141 548 3861 (Phone)
Government of New Zealand - Department of Economics
2 The Terrace
P.O. Box 2498
Wellington
New Zealand
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
HOME PAGE: http://www.CESifo.de
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