Real Exchange Rates and Fundamentals: A Cross-Country Perspective

By Luca A Ricci, Jaewoo Lee, Gian M Milesi-Ferretti

January 1, 2008

Preview Citation

Format: Chicago

Luca A Ricci, Jaewoo Lee, and Gian M Milesi-Ferretti. Real Exchange Rates and Fundamentals: A Cross-Country Perspective, (USA: International Monetary Fund, 2008) accessed December 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

This paper employs newly constructed measures for productivity differentials, external imbalances, and commodity terms of trade to estimate a panel cointegrating relationship between real exchange rates and a set of fundamentals for a sample of 48 industrial countries and emerging markets. It finds evidence of a strong positive relation between the CPI-based real exchange rate and commodity terms of trade. The estimated impact of productivity growth differentials between traded and nontraded goods, while statistically significant, is small. Increases in net foreign assets and in government consumption tend to be associated with appreciating real exchange rates.

Subject: Commodity prices, Foreign assets, Productivity, Real effective exchange rates, Real exchange rates

Keywords: Exchange rate, GDP, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/013
Stock No:

WPIEA2008013
ISBN:

9781451868753
ISSN:

1018-5941

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