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http://ssrn.com/abstract=883229
 
 

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The Fundamental Determinants of the Real Exchange Rate of the U.S. Dollar Relative to Other G-7 Currencies


Jerome L. Stein


Brown University - Division of Applied Mathematics; CESifo (Center for Economic Studies and Ifo Institute)

July 1995

IMF Working Paper No. 95/81

Abstract:     
This paper provides a consistent theoretical framework to explain the fundamental determinants of the evolution in the medium to longer run of the real effective exchange rate of the United States relative to the currencies of the other G-7 countries. The fundamental determinants are productivity and thrift in the United States and the other major industrial countries. The real rate generated by these fundamentals is referred to as the natural real exchange rate (NATREX). Then, using cointegrating and error correction analysis, the paper examines the explanatory power of the NATREX model to explain the evolution of the real exchange rate of the U.S. dollar during the floating exchange rate period.

Number of Pages in PDF File: 46

JEL Classification: F20, F21, F31, F32, F14, F34

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Date posted: February 15, 2006  

Suggested Citation

Stein, Jerome L., The Fundamental Determinants of the Real Exchange Rate of the U.S. Dollar Relative to Other G-7 Currencies (July 1995). IMF Working Paper, Vol. , pp. 1-46, 1995. Available at SSRN: http://ssrn.com/abstract=883229

Contact Information

Jerome L. Stein (Contact Author)
Brown University - Division of Applied Mathematics ( email )
Providence, RI 02912
United States
401-863-2143 (Phone)
401-863-1355 (Fax)
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
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