Nominal Exchange Rate Patterns

Nominal Exchange Rate Patterns
Author: Linda S. Goldberg
Publisher:
Total Pages: 56
Release: 1990
Genre: Business failures
ISBN:

The view that the strength of the dollar in the early 1980s was associated with persistent restructuring of United States industry is supported by correlations between exchange rate patterns and data on business formation, business failure and sectoral investment in new plant and equipment. Short term trend depreciations of the dollar are associated with reallocation of resources across sectors, while longer term trend depreciations are associated with investment expansions in many sectors of industry. Persistent exchange rate volatility is strongly associated with investment contractions, with this effect weakest during depreciation periods. This suggests a second order effect of depreciation trends: during trend depreciation periods the negative and significant correlation between exchange rate volatility and investment is reduced.

Pricing to Market and the Real Exchange Rate

Pricing to Market and the Real Exchange Rate
Author: Hamid Faruqee
Publisher: International Monetary Fund
Total Pages: 42
Release: 1995
Genre: Business & Economics
ISBN:

This paper investigates the consequences of pricing to market for exchange rate pass-through and real exchange rate dynamics across different patterns of trade under market segmentation. Under two-way, intraindustry trade--where home prices display greater linkage with those of foreign competitors--domestic and export prices exhibit lower pass-through and greater destination-specific adjustment compared to intersectoral trade. With both trade patterns, pricing-to-market behavior intensifies the degree of persistence in the real exchange rate under nominal rigidities, and allows monetary shocks to have permanent effects on relative prices when goods markets remain segmented.

Accounting for U.S. Real Exchange Rate Changes

Accounting for U.S. Real Exchange Rate Changes
Author: Charles Engel
Publisher:
Total Pages: 76
Release: 1995
Genre: Consumer goods
ISBN:

This study measures the proportion of U.S. real exchange rate movements that can be accounted for by movements in the relative prices of non-traded goods. The decomposition is done at all possible horizons that the data allow -- from one month up to thirty years. The accounting is performed with five different measures of non-traded goods prices and real exchange rates, for exchange rates of the U.S. relative to a number of other high income countries in each case. The outcome is surprising -- relative prices of non-traded goods appear to account for essentially none of the movement of U.S. real exchange rates at any horizon. Only for one crude measure, which uses the aggregate producer price index as an index of traded goods prices, do non-traded goods prices seem to account for more than a tiny portion of real exchange rate changes. This pattern appears to be true even during fixed nominal exchange rate episodes. Special attention is paid to the U.S. real exchange rate with Japan. The possibility of mismeasurement of traded goods prices is explored.

Currencies, Commodities and Consumption

Currencies, Commodities and Consumption
Author: Kenneth W. Clements
Publisher: Cambridge University Press
Total Pages: 401
Release: 2013-01-31
Genre: Business & Economics
ISBN: 110701476X

Discusses economic issues associated with exchange rates, commodity prices, the economic size of countries and alternatives to PPP exchange rates.

Regional Patterns in the Law of One Price

Regional Patterns in the Law of One Price
Author: Charles Engel
Publisher:
Total Pages: 62
Release: 1995
Genre: Marketing channels
ISBN:

We find evidence that the law of one price (LOOP) holds more nearly for country pairs that are within geographic regions than for country pairs that are not. These findings are established using disaggregated consumer price data from 23 countries (including data from eight North American cities). We find that failures of LOOP are closely related to nominal exchange rate variability, suggesting a link to sticky nominal prices. We also find that distance can explain failures of LOOP, suggesting the failures arise from imperfect market integration. However, these two sources do not explain all of the failure of LOOP. We speculate that integrated marketing and distribution systems within regions cause LOOP to hold more nearly intraregionally. We present a formal model of marketing and distribution to illustrate this hypothesis.

Nonlinear Exchange Rate Models

Nonlinear Exchange Rate Models
Author: Lucio Sarno
Publisher: International Monetary Fund
Total Pages: 40
Release: 2003-05-01
Genre: Business & Economics
ISBN: 1451853491

This paper provides a selective overview of nonlinear exchange rate models recently proposed in the literature and assesses their contribution to understanding exchange rate behavior. Two key questions are examined. The first question is whether nonlinear autoregressive models of real exchange rates help resolve the "purchasing power parity (PPP) puzzles." The second question is whether recently developed nonlinear, regime-switching vector equilibrium correction models of the nominal exchange rate can beat a random walk model, the standard benchmark in the exchange rate literature, in terms of out-of-sample forecasting performance. Finally, issues related to the adequateness of standard methods of evaluation of (linear and nonlinear) exchange rate models are discussed with reference to different forecast accuracy criteria.

What Determines Real Exchange Rates? The Long and Short of it

What Determines Real Exchange Rates? The Long and Short of it
Author: Mr.Ronald MacDonald
Publisher: International Monetary Fund
Total Pages: 54
Release: 1997-02-01
Genre: Business & Economics
ISBN: 1451921675

This paper presents a reduced-form model of the real exchange rate. Using multilateral cointegration methods, the model is implemented for the real effective exchange rates of the dollar, the mark, and the yen, over the period 1974-1993. In contrast to much other research using real exchange rates, there is evidence of significant and sensible long-run relationships for a simplified version as well as for the full version of the model. The estimated long-run relationships are used to produce dynamic equations, which outperform a random walk and produce sensible dynamic patterns in the context of an impulse response analysis.