Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries
IMF Working Papers, May 1, 1997
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- Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries
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Bibliographic details
- Authors: Louis Dorrance Johnston, Menzie David Chinn
- Published: May 1, 1997
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451962161.001
Summary and Main Findings
- Investigates the long-run relationship between the real exchange rate, traded and nontraded productivity levels, and government spending for 14 OECD countries.
- Uses recently developed panel cointegration tests.
- Results indicate that under certain assumptions it is easier to detect cointegration in panel data than in the available time series.
- The rate of reversion to long-run equilibrium is estimated with greater precision in the panel framework.
- Using the model augmented by oil prices, the authors find that in 1991 (the last year productivity data are available) there is less overvaluation of the U.S. dollar than implied by a naive version of purchasing power parity.
Methodology and Analytical Approach
- Empirical approach: panel cointegration tests applied to a panel of 14 OECD countries.
- Model augmentation: inclusion of oil prices to assess robustness of real exchange rate valuation conclusions.
- Comparative insight: panel-based inference versus available single-country time-series evidence, with panel methods yielding stronger cointegration detection and more precise adjustment speed estimates.
Subjects and Keywords (as listed)
- Subjects: Exchange rates, Foreign exchange, Production, Productivity, Purchasing power parity, Real exchange rates, Total factor productivity
- Keywords include: aggregate total factor productivity, coefficient estimate, exchange rate, exchange rate appreciation, exchange rate movement, Exchange rates, government spending, nontradable productivity, nontradable productivity differential, Productivity, productivity coefficient, productivity differential, productivity shock, Purchasing power parity, Real exchange rates, SUR estimation result, time series, Total factor productivity, trend exchange rates, WP
Source: Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries, IMF Working Paper No. 1997/066