Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/259834 
Year of Publication: 
2000
Series/Report no.: 
Working Paper No. 2000:4
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
This study evaluates the individual roles of monetary and productivity shocks in real exchange rate fluctuations under the current float. Using a cointegration model of exchange rates and relative prices, the innovations are decomposed into transitory and common-trend parts. Both transitory and common-trend innovations are found to explain a significant portion of real exchange rate fluctuations, albeit their relative importance can vary across major currencies. Further analysis suggests that common-trend innovations are ascribed mostly to productivity shocks, whereas transitory innovations are governed by monetary shocks. The allowance for productivity shocks, however, appears insufficient to fully explain the high persistence of real exchange rates.
Subjects: 
Real exchange rate
real shock
monetary shock
transitory component
common trend
JEL: 
F31
F41
Document Type: 
Working Paper

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