Measuring the dollar–euro permanent equilibrium exchange rate using the unobserved components model

Abstract

R. (2015) 'Measuring the dollar euro permanent equilibrium exchange rate using the unobserved components model.', Journal of international money and nance., 53 . pp. 20-35. Further information on publisher's website:http://dx.doi.org/10.1016/j.jimon n.2014.12.008Publisher's copyright statement: NOTICE: this is the author's version of a work that was accepted for publication in Journal of International Money and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be re ected in this document. Changes may have been made to this work since it was submitted for publication. A de nitive version was subsequently published in Journal of International Money and Finance, 53, May 2015, 10.1016/j.jimon n.2014.12.008. Additional information:Use policyThe full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-pro t purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details.

Dissecting Exchange Rates and Fundamentals in the Modern Floating Era: The Role of Permanent and Transitory Shocks

“…In this paper, we empirically assess Engel and West ()'s explanation by using the permanent and transitory decomposition method proposed by Gonzalo and Ng () to determine the relative contributions of permanent and transitory shocks to nominal exchange rates and their fundamentals. The permanent–transitory decomposition method has been applied to study the real effective exchange rates (see Chen and MacDonald, ; Evans and Lothian, ), the relationship between consumption and wealth (Lettau and Ludvigson, ), the sources of current account fluctuations (Corsetti and Konstantinou, ), and many other issues. In this paper, we analyze the role of permanent and transitory shocks in explaining nominal exchange rates and economic fundamentals in the modern floating era.…”