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Real Exchange Rates Over the Past Two Centuries : How Important is the Harrod-Balassa-Samuelson Effect?

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  • Lothian, James R.

    (Fordham University)

  • Taylor, Mark P.

    (University of Warwick and Centre for Economic Policy Research, London)

Abstract

Using data since 1820 for the US, the UK and France, we test for the presence of real effects on the equilibrium real exchange rate (the Harrod-Balassa-Samuelson, HBS effect) in an explicitly nonlinear framework and allowing for shifts in real exchange rate volatility across nominal regimes. A statistically signifcant HBS effect for sterling-dollar captures its longrun trend and explains a proportion of variation in changes in the real rate that is proportional to the time horizon of the change. There is signifcant evidence of nonlinear reversion towards long-run equilibrium and downwards shifts in volatility during &xed nominal exchange rate regimes.

Suggested Citation

  • Lothian, James R. & Taylor, Mark P., 2006. "Real Exchange Rates Over the Past Two Centuries : How Important is the Harrod-Balassa-Samuelson Effect?," The Warwick Economics Research Paper Series (TWERPS) 768, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:768
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    Keywords

    purchasing power parity ; real exchange rate ; nonlinear dynamics ; Harrod-Balassa-Samuelson effect ; productivity differentials;
    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
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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