The Real Exchange Rate in Small, Open, Developed Economies: Evidence from Cointegration Analysis

13 Pages Posted: 13 Apr 2004

See all articles by Debabrata Bagchi

Debabrata Bagchi

Government of New York City, NY - Office of Tax Policy

Georgios E. Chortareas

University of Athens - Faculty of Economics; University of Essex - Department of Accounting, Finance & Management; King's College London

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Abstract

We examine the effects of the terms of trade and the expected real interest rate differential on the real exchange rate in small, open, developed economies. We employ cointegration analysis to search for long-term linkages. We find that while both the terms of trade and the expected real interest rate differentials affect the real exchange rate in the long run, the role of the terms of trade generally proves more consistent. The speed of adjustment for the expected real interest rate differential in the error-correction model, however, is quantitatively larger than it is for the terms of trade.

Suggested Citation

Bagchi, Debabrata and Chortareas, Georgios and Miller, Stephen M., The Real Exchange Rate in Small, Open, Developed Economies: Evidence from Cointegration Analysis. Economic Record, Vol. 80, pp. 76-88, March 2004. Available at SSRN: https://ssrn.com/abstract=513513

Debabrata Bagchi (Contact Author)

Government of New York City, NY - Office of Tax Policy ( email )

253 Broadway
New York, NY 10007
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Georgios Chortareas

University of Athens - Faculty of Economics ( email )

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University of Essex - Department of Accounting, Finance & Management ( email )

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King's College London ( email )

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Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics ( email )

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Las Vegas, NV 89154
United States
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702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

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Storrs, CT 06269-1063
United States

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