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The long-run determination of the real exchange rate. Evidence from an intertemporal modelling framework using the dollar-pound exchange rate

Pilbeam, K. and Litsions, I. (2015). The long-run determination of the real exchange rate. Evidence from an intertemporal modelling framework using the dollar-pound exchange rate (Report No. 15/19). London, UK: Department of Economics, City University London.

Abstract

This paper develops a model of optimal choice over an array of different assets, including domestic and foreign bonds, domestic and foreign equities and domestic and foreign real money balances in order to examine the determination of the real exchange rate in the long-run. The model is tested empirically using data from the UK and the USA. The results show that all the coefficients of the model are right signed and significant and consequently financial assets may play a significant role in the determination of the real exchange rate.

Publication Type: Monograph (Discussion Paper)
Additional Information: Copyright 2015, the authors
Publisher Keywords: real exchange rate, intertemporal model, asset prices, Vector Error Correction Model
Subjects: H Social Sciences > HB Economic Theory
Departments: School of Arts & Social Sciences > Economics
School of Arts & Social Sciences > Economics > Discussion Paper Series
URI: http://openaccess.city.ac.uk/id/eprint/14075
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