Time-Varying Dynamics Of The Real Exchange Rate: An Empirical Analysis

TY - JOUR

T1 - Time-Varying Dynamics Of The Real Exchange Rate: An Empirical Analysis

AU - Sunder-Plassmann, Laura

AU - Mumtaz, Haroon

PY - 2013

Y1 - 2013

N2 - We use a time-varying structural vector autoregression to investigate evolving dynamics of the real exchange rate for the UK, euro area and Canada. We show that demand and nominal shocks have a substantially larger impact on the real exchange rate after the mid 1980s. Real exchange rate volatility, relative to fundamentals, also shows a marked increase after this point in time. However, there is some evidence suggesting a closer business cycle co-movement of the real exchange rate and fundamentals. Simulations from an open-economy DSGE model show that these results are consistent with a decline in exchange rate pass-through.

AB - We use a time-varying structural vector autoregression to investigate evolving dynamics of the real exchange rate for the UK, euro area and Canada. We show that demand and nominal shocks have a substantially larger impact on the real exchange rate after the mid 1980s. Real exchange rate volatility, relative to fundamentals, also shows a marked increase after this point in time. However, there is some evidence suggesting a closer business cycle co-movement of the real exchange rate and fundamentals. Simulations from an open-economy DSGE model show that these results are consistent with a decline in exchange rate pass-through.

U2 - 10.1002/jae.2270

DO - 10.1002/jae.2270

M3 - Journal article

SN - 0883-7252

VL - 28

SP - 498

EP - 525

JO - Journal of Applied Econometrics

JF - Journal of Applied Econometrics

IS - 3

ER -