Long-Run Exchange Rate Modeling: A Survey of the Recent Evidence

52 Pages Posted: 15 Feb 2006

See all articles by Ronald MacDonald

Ronald MacDonald

University of Strathclyde in Glasgow - Department of Economics; Government of New Zealand - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 1995

Abstract

In this paper we survey the recent literature on long run, or equilibrium, exchange rate modeling. In particular, we review the voluminous literature which tests for a unit root in real exchange rates and the closely related work on testing for a unit root in the residual from a regression of the nominal exchange rate on relative prices. We argue that the balance of evidence is supportive of the existence of some form of long-run exchange rate relationship. The form of this relationship, however, does not accord exactly with a traditional representation of the long-run exchange rate. We offer some potential explanations for this lack of conformity.

JEL Classification: F31

Suggested Citation

MacDonald, Ronald R., Long-Run Exchange Rate Modeling: A Survey of the Recent Evidence (January 1995). IMF Working Paper No. 95/14, Available at SSRN: https://ssrn.com/abstract=883164

Ronald R. MacDonald (Contact Author)

University of Strathclyde in Glasgow - Department of Economics ( email )

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Government of New Zealand - Department of Economics

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

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