Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/195475 
Year of Publication: 
2017
Citation: 
[Journal:] Econometrics [ISSN:] 2225-1146 [Volume:] 5 [Issue:] 3 [Publisher:] MDPI [Place:] Basel [Year:] 2017 [Pages:] 1-21
Publisher: 
MDPI, Basel
Abstract: 
The long and persistent swings in the real exchange rate have for a long time puzzled economists. Recent models built on imperfect knowledge economics seem to provide a theoretical explanation for this persistence. Empirical results, based on a cointegrated vector autoregressive (CVAR) model, provide evidence of error-increasing behavior in prices and interest rates, which is consistent with the persistence observed in the data. The movements in the real exchange rate are compensated by movements in the interest rate spread, which restores the equilibrium in the product market when the real exchange rate moves away from its long-run benchmark value. Fluctuations in the copper price also explain the deviations of the real exchange rate from its long-run equilibrium value.
Subjects: 
exchange rate
long swings
I(2) analysis
JEL: 
C32
F31
F41
G15
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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