Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/67756
Authors: 
Head, Allen C.
Mattina, Todd D.
Smith, Gregor W.
Year of Publication: 
2004
Series/Report no.: 
Queen's Economics Department Working Paper 1246
Abstract: 
Many international macroeconomic models link the real exchange rate to a ratio of marginal utilities. We examine this link empirically, allowing the marginal utility of consumption to depend on government expenditure, real money balances, or external habit. We also consider two environments with incomplete asset markets; one with exogenously missing markets but an endogenous discount rate that anchors the distribution of wealth and one with endogenous market segmentation. Although none of these satisfies theoretical and over-identifying restrictions for every country, utility with external habit persistence provides the best match with real exchange rates for OECD countries between 1961 and 2001.
Subjects: 
real exchange rate
consumption
marginal utility
JEL: 
F41
Document Type: 
Working Paper

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