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

Pilbeam, K. & Litsios, I. (2017). The long-run determination of the real exchange rate. Evidence from an intertemporal modelling framework using the dollar-pound exchange rate. Open Economies Review, 28(5), pp. 1011-1028. doi: 10.1007/s11079-017-9467-7

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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 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: Article
Additional Information: This is a post-peer-review, pre-copyedit version of an article published in Open Economies Review. The final authenticated version is available online at: http://dx.doi.org/10.1007/s11079-017-9467-7.
Publisher Keywords: Real exchange rate, Intertemporal model, Asset prices, Vector Error Correction Model
Subjects: H Social Sciences > HB Economic Theory
Departments: School of Social Sciences > Department of Economics
URI: http://openaccess.city.ac.uk/id/eprint/17277

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