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

Faruqee, Hamid

doi:10.2307/3867341

Cited by 196 publications

(125 citation statements)

References 17 publications

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“…There are three main reasons for this choice: first Gonzalo (1994) shows that Johansen's tests perform better than other approaches under various specifications errors. Secondly, Johansen's approach is able to incorporate the entire cointegration 6 While the transitory component of the sectoral relative prices, P NT t is just the deviation of P NT t from its equilibrium level P NT t , from (9) and (10), we note that…”

Section: Estimation and Orthogonal Decompositionmentioning

confidence: 99%

“…The construction of the relative sectoral prices P NT is based on a comparative index of the relative price of nontradable versus tradable goods, devised by Faruqee (1995). Specifically, this comparative index consists of the domestic ratio of the consumer price index (CPI ) to the wholesale price index (WPI ) relative to the corresponding ratio of the home country's trading partners.…”

Section: The Datamentioning

confidence: 99%

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Internal and external exchange rate equilibrium in a cointegration framework. An application to the Spanish peseta

Alberola

López

2001

Span Econ Rev

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A simple cointegration methodology is used to compute the equilibrium real exchange rate for the peseta. The stock of foreign assets and the evolution of sectoral prices are considered to be the fundamentals for the real exchange rate. After testing for cointegration, we proceed to decompose the series into a permanent and a transitory component, following the method devised by Gonzalo and Granger. The permanent component of the real exchange rate corresponds to its (time-varying) equilibrium value, and the deviation of the actual real exchange rate from this equilibrium value gives an estimation of the degree of misalignment of the real exchange rate. By the end of the sample (1998:1), the peseta is estimated to be undervalued around 6%.JEL classification: C32, F31, F41

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Section: Estimation and Orthogonal Decompositionmentioning

confidence: 99%

Section: The Datamentioning

confidence: 99%

Internal and external exchange rate equilibrium in a cointegration framework. An application to the Spanish peseta

Alberola

López

2001

Span Econ Rev

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“…Secondly, the link between the oil price and U.S. dollar exchange rate can be apprehended through the lens of petrodollars recycling effects and portfolio Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/enpol models (Krugman, 1983a(Krugman, , 1983bGolub, 1983), which were designed to account for trade and financial interactions between the United States, oil-producing countries and third countries (especially Europe). Thirdly, referring to the literature on equilibrium exchange rates (Clark and MacDonald, 1998;Faruqee, 1995), if a country accumulates foreign assets, its exchange rate appreciates. This movement occurs without impeding the country's current account balance because capital income takes over the loss in trade receipts induced by the deteriorated competitiveness.…”

Section: Introductionmentioning

confidence: 99%

Reassessing the empirical relationship between the oil price and the dollar

Coudert

Mignon

2016

Energy Policy

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We reassess the relationship between the real oil price and the dollar over the 1974-2015 period. Changes in the two variables are linked by a negative relationship over the whole period. The link between both variables is positive over the subsample ending in the mid-2000s. We estimate a nonlinear model in which the oil price-dollar nexus depends on the evolution the dollar. The relationship is negative most of the times, except when the dollar hits very high values.JEL classification: C22 F31 Q43 Keywords:Oil price Dollar real effective exchange rate Causality Nonlinearity a b s t r a c t This paper aims at reassessing the empirical relationship between the real price of oil and the U.S. dollar real effective exchange rate over the 1974-2015 period. We find that changes in both variables are now linked by a negative relationship, going from the dollar exchange rate to the real oil price. However, the same relationship is found positive when ending the sample in the mid-2000s, in line with the previous literature. To understand and investigate this evolution, we rely on a nonlinear, smooth transition regression model in which the oil price-dollar nexus depends on the dynamics followed by the U.S. currency. Our results show that the relationship is negative most of the times but turns positive when the dollar hits very high values, as in the early eighties.

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“…In earlier studies, the dynamics of exchange rates have been mainly attributed to monetary factors [1,2], real macroeconomic variables [3][4][5][6][7][8] as well as resource endowments and changes in terms of trade and productivity differentials relative to a country's trading partners [9]. Apart from that, commodity prices, such as oil, are also a focus of studies [10][11][12] to investigate the reasons for exchange rate fluctuations.…”

Section: Introductionmentioning

confidence: 99%

Impacts of Credit Default Swaps on Volatility of the Exchange Rate in Turkey: The Case of Euro

Kar

Bayat

Kayhan

2016

IJFS

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Abstract:In this study, we aim to investigate the impacts of credit default swaps (CDS) premium as a risk financial indicator on the fluctuations of value of the Turkish lira against the Euro. We try to answer the following questions: Is the CDS premium change among the drivers of EUR/TL exchange rate and what are the possible effects of CDS premium volatility on EUR/TL exchange rate stability in different conditions? In this regard, we developed a MS-VAR regime change model and asymmetric, frequency domain and rolling windows causality analysis methods. Results obtained from all tests imply that risk premium is partially a driver of the EUR/TL exchange rate between the years 2009 and 2015.

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

Cited by 196 publications

References 17 publications

Internal and external exchange rate equilibrium in a cointegration framework. An application to the Spanish peseta

Internal and external exchange rate equilibrium in a cointegration framework. An application to the Spanish peseta

Reassessing the empirical relationship between the oil price and the dollar

Impacts of Credit Default Swaps on Volatility of the Exchange Rate in Turkey: The Case of Euro

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