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Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective

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  • Mr. Hamid Faruqee

Abstract

This paper examines the long-run determinants of the real exchange rate from a stock-flow perspective. The empirical analysis estimates a long-run relationship between the real exchange rate, net foreign assets and other factors affecting trade flows. Using postwar data for the United States and Japan, cointegration analysis supports the finding that the structural factors underlying each country’s net trade and net foreign asset positions determine the long-run path for the real value of the dollar and the yen. The empirical analysis also provides estimates for the underlying stochastic trend in each real exchange rate series.

Suggested Citation

  • Mr. Hamid Faruqee, 1994. "Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective," IMF Working Papers 1994/090, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1994/090
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    References listed on IDEAS

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    1. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    WP; exchange rate; terms of trade; real value; real exchange rate; exchange rate movement; productivity differential; current account position; net trading position; level of significance; point estimate; time series; sustainable balance of payments position; stock variable; balance of payments equilibrium condition; Real exchange rates; Foreign assets; Productivity; Exchange rate arrangements; Current account; Western Europe; Global;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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