Testing the Equilibrium Exchange Rate Model - Updated

Guilherme, Moura and Sergio, Da Silva (2006): Testing the Equilibrium Exchange Rate Model - Updated. Forthcoming in: Finance Letters

Abstract

We find favorable evidence for the textbook equilibrium exchange rate model of Stockman (1987) using Blanchard and Quah’s (1989) decomposition. Real shocks are shown to account for more than 90 percent of movements in the real exchange rate between Brazil and the US, and for more than half of nominal exchange rate changes. Impulse response functions also suggest that real shocks alter these countries’relative prices.

• Item Type: MPRA Paper
• Institution: Federal University of Santa Catarina/Kiel University
• Language: English
• Keywords: Equilibrium Exchange Rate Model; Blanchard and Quah’s Decomposition
• Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F47 - Forecasting and Simulation: Models and Applications; F - International Economics > F3 - International Finance > F37 - International Finance Forecasting and Simulation: Models and Applications

References

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