Real and Nominal Exchange Rates in the Long Run

31 Pages Posted: 15 Feb 2006

See all articles by Charles L Adams

Charles L Adams

affiliation not provided to SSRN

Bankim Chadha

affiliation not provided to SSRN

Date Written: June 1991

Abstract

This paper decomposes longer-run movements in (major) dollar real exchange rates into components associated with changes in nominal exchange rates and price levels, and their comovements. Though the decompositions suggest some permanent movements, they imply that there are large transitory components in real exchange rates. These transitory components in real exchange rates are found to be closely associated with those in nominal exchange rates. A stochastic version of Dornbusch`s overshooting model--configured with representative parameter values for the United States and subjected to permanent nominal shocks--can rationalize these transitory comovements of nominal and real exchange rates as well as several other features of the decompositions.

JEL Classification: F31, C50

Suggested Citation

Adams, Charles L and Chadha, Bankim, Real and Nominal Exchange Rates in the Long Run (June 1991). IMF Working Paper No. 91/63, Available at SSRN: https://ssrn.com/abstract=884900

Charles L Adams (Contact Author)

affiliation not provided to SSRN

Bankim Chadha

affiliation not provided to SSRN

No Address Available