Short-Run Real Exchange Rate Dynamics

Posted: 12 Jan 2001

See all articles by Ana-Maria Fuertes

Ana-Maria Fuertes

Cass Business School, City University of London

Jerry Coakley

University of Essex - Essex Business School

Abstract

The short-run dynamics of German mark and US dollar real exchange rates are investigated for a panel of 19 OECD economies in a vector error correction framework for the 1973-96 period. The novel persistence profiles approach of Pesaran and Shin ("Cointegration and Speed of Convergence to Equilibrium", Journal of Econometrics, Vol. 71, (1996), pp. 117-143) indicates that the effect of system-wide shocks declines rapidly initially but decays slowly thereafter. It yields an average of just one year for the half-life of such shocks but some seven years before they fully dissipate. These half-life estimates are just one-quarter of the consensus estimates. Our results are consistent with non-linear adjustment and with monetary factors being the main source of real exchange rate volatility.

Suggested Citation

Fuertes, Ana-Maria and Coakley, Jerry, Short-Run Real Exchange Rate Dynamics. The Manchester School, Vol. 68, Issue 4, June 2000; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=242841

Ana-Maria Fuertes

Cass Business School, City University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 207 477 0186 (Phone)
+44 207 477 8881 (Fax)

HOME PAGE: http://www.city.ac.uk/people/academics/ana-maria-fuertes

Jerry Coakley (Contact Author)

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
+44 1206 872455 (Phone)
+44 1206 873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/afm/staff/coakley.shtm

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