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http://hdl.handle.net/10419/40933
  
Title:An oversimplified inquiry into the sources of exchange rate variability PDF Logo
Authors:Kempa, Bernd
Issue Date:2003
Series/Report no.:Diskussionsbeiträge aus dem Fachbereich Wirtschaftswissenschaften der Universität Duisburg-Essen, Standort Essen 129
Abstract:Exchange rates as well as relative price level and output movements are decomposed into components associated with nominal shocks as well as shocks to aggregate supply and aggregate demand. In contrast to previous analyses of such decompositions based on statistical vector autoregression (VAR) analysis, this study takes as a starting point a simple textbook model of exchange rate determination, augments it by allowing for suitably defined random shocks and transforms it into a triangular format resembling the identification procedure of the VAR methodology. Applied to major bilateral exchange rate series, the decomposition suggests that exchange rate variability is mostly driven by shocks to aggregate demand, partcularly in the longer run. Overall, the evidence is roughly in line with previous decompositions obtained from statistical VARs.
Subjects:exchange rates
vector autoregression
nominal and real shocks
JEL:F41
F47
C63
Document Type:Working Paper
Appears in Collections:IBES Diskussionsbeiträge, Universität Duisburg-Essen

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