Real Exchange Rates and Fundamentals: A Cross-Country Perspective

27 Pages Posted: 4 Feb 2008

See all articles by Luca A. Ricci

Luca A. Ricci

International Monetary Fund (IMF) - Research Department

Gian Maria Milesi-Ferretti

International Monetary Fund (IMF); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jaewoo Lee

International Monetary Fund (IMF) - Research Department

Date Written: Janurary 2008

Abstract

This paper employs newly constructed measures for productivity differentials, external imbalances, and commodity terms of trade to estimate a panel cointegrating relationship between real exchange rates and a set of fundamentals for a sample of 48 industrial countries and emerging markets. It finds evidence of a strong positive relation between the CPI-based real exchange rate and commodity terms of trade. The estimated impact of productivity growth differentials between traded and nontraded goods, while statistically significant, is small. Increases in net foreign assets and in government consumption tend to be associated with appreciating real exchange rates.

Keywords: Real effective exchange rates, Productivity, Trade

Suggested Citation

Ricci, Luca Antonio and Milesi-Ferretti, Gian Maria and Lee, Jaewoo, Real Exchange Rates and Fundamentals: A Cross-Country Perspective (Janurary 2008). IMF Working Papers, Vol. , pp. 1-25, 2008. Available at SSRN: https://ssrn.com/abstract=1089659

Luca Antonio Ricci

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6007 (Phone)
202-623-4072 (Fax)

Gian Maria Milesi-Ferretti

International Monetary Fund (IMF) ( email )

700 19th Street NW
Room 9-700
Washington, DC 20431
United States
202-623-7441 (Phone)
202-589-7441 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jaewoo Lee

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7331 (Phone)
202-623-6334 (Fax)

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