Meenagh, David Minford, Patrick Nowell, Eric Sofat, Prakriti
Year of Publication:
Cardiff Economics Working Papers E2005/2
This paper establishes the ability of a Real Business Cycle model to account for real exchange rate behaviour, using UK data. We show that a productivity simulation is capable of explaining initial real appreciation with subsequent depreciation to a lower steady state. The model is tested by the method of indirect inference, bootstrapping the errors to generate 95% confidence limits for a time-series representation of the real exchange rate, as well as for various key data moments. The results suggest RBC models can explain real exchange rate movements.
Real Exchange Rate Productivity Real Business Cycle Bootstrap Indirect Inference