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Nominal and real exchange rate co-movements

Author

Listed:
  • Rebeca Jiménez-Rodríguez

    (University of Salamanca)

  • Amalia Morales-Zumaquero

    (University of Málaga)

Abstract

This paper investigates the existence of common movements between nominal and real exchange rates across different countries in three regions – North America, Western Europe, and Central and Eastern Europe – by using the multi-factor model. It also examines the role of macroeconomic fundamentals (i.e., prices, money and output) in order to explain the variance of the exchange rate global factor. The findings suggest the existence of co-movements among exchange rates. The exchange rate global factor seems to play a central role in explaining exchange rate variability in Western Europe, whereas regional and country-specific factors are the most important ones in North America and Central and Eastern Europe, respectively. Finally, the paper shows empirical evidence in favour of the connection between exchange rate global factor variability and macroeconomic fundamentals. Moreover, the importance of fundamentals has increased in the recent global crisis.

Suggested Citation

  • Rebeca Jiménez-Rodríguez & Amalia Morales-Zumaquero, 2014. "Nominal and real exchange rate co-movements," Journal of Applied Economics, Universidad del CEMA, vol. 17, pages 283-300, November.
    • Handle: RePEc:cem:jaecon:v:17:y:2014:n:2:p:283-300
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    Keywords

    exchange rates; co-movements; CEE countries; dynamic factor;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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