How real are real exchange rates?

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This Paper analyzes the role of real disturbances in the real dollar exchange rates of the mark, yen and the pound both during the post-1973 float and in the long-run historical date. The results indicate dominate roles of real shocks in all three exchange rates in the post-1973 float although a substantial portion of short-run variations in the mark and yen contains monetary characteristics. In the long historical date, real shocks are far less important explaining only a small portion of nominal exchange rate movements and 50 to 80 percent of real exchange rate movements. The analysis is based on the Mundell-Fleming-Dornbusch model as the structural model and the multivariate method of time series decomposition to incorporate the long-run invariance of the exchange rate with respect to monetary shocks. [F31, F41].

Original languageEnglish
Pages (from-to)87-108
Number of pages22
JournalInternational Economic Journal
Issue number1
StatePublished - Mar 1997

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (all)


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