Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries

32 Pages Posted: 15 Feb 2006

See all articles by Menzie David Chinn

Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: May 1997

Abstract

We investigate the long-run relationship between the real exchange rate, traded and nontraded productivity levels, and government spending for 14 OECD countries, using recently developed panel cointegration tests. The results indicate that under certain assumptions it is easier to detect cointegration in panel data than in the available time series; moreover, the rate of reversion to long-run equilibrium is estimated with greater precision. Using the model augmented by oil prices, we find that in 1991 (the last year productivity data are available) there is less overvaluation of the U.S. dollar than that implied by a naive version of purchasing power parity.

JEL Classification: F31, C23, C22

Suggested Citation

Chinn, Menzie David, Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries (May 1997). IMF Working Paper No. 97/66, Available at SSRN: https://ssrn.com/abstract=882339

Menzie David Chinn (Contact Author)

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