Abstract
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.
| Original language | English |
|---|---|
| Journal | Journal of Applied Econometrics |
| Volume | 28 |
| Issue number | 3 |
| Pages (from-to) | 498–525 |
| ISSN | 0883-7252 |
| DOIs | |
| Publication status | Published - 2013 |
| Externally published | Yes |