Bordo, M. D., Choudhri, E. U., Fazio, G. and MacDonald, R. (2017) The real exchange rate in the long run: Balassa-Samuelson effects reconsidered. Journal of International Money and Finance, 75, pp. 69-92. (doi: 10.1016/j.jimonfin.2017.03.011)
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Abstract
Historical data for over hundred years and 14 countries is used to estimate the long-run effect of productivity on the real exchange rate. We find large variations in the productivity effect across four distinct monetary regimes in the sample period. Although the traditional Balassa-Samuelson model is not consistent with these results, we suggest an explanation of the results in terms of contemporary variants of the model that incorporate the terms of trade mechanism. Specifically we argue that changes in trade costs over time may affect the impact of productivity on the real exchange rate over time. We undertake simulations of the modern versions of the Balassa-Samuelson model to show that plausible parameter shifts consistent with the behavior of trade costs can explain the cross-regime variation of the productivity effect.
Item Type: | Articles |
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Status: | Published |
Refereed: | Yes |
Glasgow Author(s) Enlighten ID: | MacDonald, Professor Ronald |
Authors: | Bordo, M. D., Choudhri, E. U., Fazio, G., and MacDonald, R. |
College/School: | College of Social Sciences > Adam Smith Business School > Economics |
Journal Name: | Journal of International Money and Finance |
Publisher: | Elsevier |
ISSN: | 0261-5606 |
ISSN (Online): | 1873-0639 |
Published Online: | 19 April 2017 |
Copyright Holders: | Copyright © 2017 Elsevier |
First Published: | First published in Journal of International Money and Finance 75:69-92 |
Publisher Policy: | Reproduced in accordance with the copyright policy of the publisher |
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