IMF Working Papers

Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective

By Hamid Faruqee

August 1, 1994

Preview Citation

Format: Chicago

Hamid Faruqee. Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective, (USA: International Monetary Fund, 1994) 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

This paper examines the long-run determinants of the real exchange rate from a stock-flow perspective. The empirical analysis estimates a long-run relationship between the real exchange rate, net foreign assets and other factors affecting trade flows. Using postwar data for the United States and Japan, cointegration analysis supports the finding that the structural factors underlying each country’s net trade and net foreign asset positions determine the long-run path for the real value of the dollar and the yen. The empirical analysis also provides estimates for the underlying stochastic trend in each real exchange rate series.

Subject: Balance of payments, Current account, Exchange rate arrangements, External position, Foreign assets, Foreign exchange, Production, Productivity, Real effective exchange rates, Real exchange rates

Keywords: Balance of payments equilibrium condition, Current account, Current account position, Exchange rate, Exchange rate arrangements, Exchange rate movement, Foreign assets, Global, Level of significance, Net trading position, Point estimate, Productivity, Productivity differential, Real exchange rate, Real exchange rates, Real value, Stock variable, Sustainable balance of payments position, Terms of trade, Time series, Western Europe, WP

Publication Details

  • Pages:

    40

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1994/090

  • Stock No:

    WPIEA0901994

  • ISBN:

    9781451851359

  • ISSN:

    1018-5941

Notes

Study based on postwar data for the United States and Japan. Also published in Staff Papers, Vol. 42, No. 1, March 1995.

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