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The cause of an integral correction mechanism of the real exchange rate

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  • Jiang, Shifu

Abstract

I find that Rabanal and Rubio-Ramirez (2015)’s international real business cycle model can explain an integral correction mechanism of the real exchange rate. An input adjustment cost in their model implies that the real exchange appreciates following a positive domestic productivity shock and reverts to steady state quickly, but presents a long-run cyclical movement. These particular dynamics help explain the PPP puzzle.

Suggested Citation

  • Jiang, Shifu, 2017. "The cause of an integral correction mechanism of the real exchange rate," Economics Letters, Elsevier, vol. 161(C), pages 66-70.
    • Handle: RePEc:eee:ecolet:v:161:y:2017:i:c:p:66-70
    DOI: 10.1016/j.econlet.2017.09.022
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    References listed on IDEAS

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    1. James R. Lothian & Mark P. Taylor, 2008. "Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod‐Balassa‐Samuelson Effect?," Economic Journal, Royal Economic Society, vol. 118(532), pages 1742-1763, October.
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    11. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2014. "The International Dimension Of Productivity And Demand Shocks In The Us Economy," Journal of the European Economic Association, European Economic Association, vol. 12(1), pages 153-176, February.
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    More about this item

    Keywords

    Real exchange rate; Integral correction mechanism; Open economy DSGE;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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