Real exchange rates and switching regimes

Inequality and Real Exchange Rates

Kocherlakota and Pistaferri (2007) describe two different models (Private Information Pareto Optimal and Incomplete Markets) of how households partially insure themselves against idiosyncratic shocks. They demonstrate that the models differ in terms of their implications for real exchange rates. In this paper, we use data from a wide range of countries, and document that there is a statististic...

Persistent Real Exchange Rates

Three features of the international exchange rate data that are widely known are: (a) a high correlation between bilateral nominal and real exchange rates; (b) real exchange rate movements are highly persistent; and (c) real exchange rates are highly volatile. This paper attempts a joint, albeit partial, rationalization of these facts in an environment with no staggered contracts and where pric...

Markov Switching Regimes in a Monetary Exchange Rate Model*

This paper extends the real interest differential (RID) model of Frankel (1979) by introducing Markov regime switches for three exchange rates over the years 1973 2000. Evidence of a non-linear relationship between exchange rates and underlying fundamentals is provided. One of the regimes represents exactly the RID case. Decisive fundamentals in determining regimes turn out to be mainly interes...

Fractional cointegration and real exchange rates

This paper uses fractional integration and cointegration in order to model the DM/dollar and the yen/dollar real exchange rates in terms of both monetary and real factors, more specifically real interest rate and labour productivity differentials. We find that whilst the individual series may be integrated of order 1, their long-run relationship might have a fractionally cointegrated structure....

Real exchange rates , dollarization and industrial