IMF Working Papers

On Interpreting the Random Walk Behavior of Nominal and Real Exchange Rates

By Charles Adams, Bankim Chadha

January 1, 1991

Preview Citation

Format: Chicago

Charles Adams, and Bankim Chadha. On Interpreting the Random Walk Behavior of Nominal and Real Exchange Rates, (USA: International Monetary Fund, 1991) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The random walk property of exchange rates is frequently regarded as carrying strong implications for the kinds of shocks that have driven exchange rates and the models appropriate for analyzing their behavior. This paper conducts stochastic simulations of Dornbusch’s (1976) sticky-price monetary model, calibrated for representative parameter values for the United States. It shows that the model is capable of generating time series for both real and nominal exchange rates that are statistically indistinguishable from random walks when all shocks are nominal.

Subject: Exchange rates, Foreign exchange, Forward exchange rates, Monetary base, Money, Purchasing power parity, Real exchange rates, Spot exchange rates

Keywords: Augmented Dickey-Fuller statistic, Box-Ljung Q, Exchange rates, Forward exchange rates, Monetary base, Money supply innovation, Nominal exchange rate, Price level, Random walk finding, Random walk property, Real exchange rates, Spot exchange rates, Stochastic process, Test statistics, Unit root, WP

Publication Details

  • Pages:

    22

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1991/007

  • Stock No:

    WPIEA0071991

  • ISBN:

    9781451842340

  • ISSN:

    1018-5941

Notes

Also published in Staff Papers, Vol. 38, No. 4, December 1991.

You May Also Be Interested In...

EBA-Lite 3.0 Model and Methodology

November 18, 2024

Foreign Exchange Intervention Under the Integrated Policy Framework: The Case of India

November 15, 2024

Lao People's Democratic Republic: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Lao People's Democratic Republic

November 8, 2024

The Federal Democratic Republic of Ethiopia: First Review Under the Extended Credit Facility Arrangement, Request for Modification of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for The Federal Democratic Republic of Ethiopia

November 4, 2024