Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries

By Louis Dorrance Johnston, Menzie David Chinn

May 1, 1997

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Louis Dorrance Johnston, and Menzie David Chinn. Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries, (USA: International Monetary Fund, 1997) accessed December 26, 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

We investigate the long-run relationship between the real exchange rate, traded and nontraded productivity levels, and government spending for 14 OECD countries, using recently developed panel cointegration tests. The results indicate that under certain assumptions it is easier to detect cointegration in panel data than in the available time series; moreover, the rate of reversion to long-run equilibrium is estimated with greater precision. Using the model augmented by oil prices, we find that in 1991 (the last year productivity data are available) there is less overvaluation of the U.S. dollar than that implied by a naive version of purchasing power parity.

Subject: Exchange rates, Foreign exchange, Production, Productivity, Purchasing power parity, Real exchange rates, Total factor productivity

Keywords: 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

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1997/066
Stock No:

WPIEA0661997
ISBN:

9781451962161
ISSN:

1018-5941

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