Productivity Trends and the Sterling Real Exchange Rates

26 Pages Posted: 29 Jul 2007

See all articles by Frank Engels

Frank Engels

affiliation not provided to SSRN

Panagiotis Th. Konstantinou

University of Macedonia - Department of Economics

Jens Sondergaard

Capital Group International, Inc. - London Office

Abstract

This paper provides favorable econometric evidence for a productivity-based model of the pound/euro real exchange rate. We find that a 1% increase in UK productivity is consistent with a 3.5% real depreciation of sterling. Likewise, a 1% increase in euro area productivity is compatible with a 5.16% real appreciation of sterling. The asymmetric response of UK and foreign productivity shocks corresponds well with our model if UK labor supply is more elastic than euro area labor supply. Estimates of equilibrium exchange rates suggest that sterling was not overvalued at its 2004Q3 level vis-a-vis the euro.

Suggested Citation

Engels, Frank and Konstantinou, Panagiotis Th. and S√łndergaard, Jens, Productivity Trends and the Sterling Real Exchange Rates. Review of International Economics, Vol. 15, No. 3, pp. 612-637, August 2007. Available at SSRN: https://ssrn.com/abstract=1003457 or http://dx.doi.org/10.1111/j.1467-9396.2007.00671.x

Frank Engels (Contact Author)

affiliation not provided to SSRN

Panagiotis Th. Konstantinou

University of Macedonia - Department of Economics ( email )

156 Egnatia Street
Thessaloniki, 54006
Greece
+30 2310 891724 (Phone)
+30 2310 891292 (Fax)

Jens S√łndergaard

Capital Group International, Inc. - London Office ( email )

40 Grosvenor Place
London, England SW1X 7GG
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
12
Abstract Views
541
PlumX Metrics