Model Trending Real Exchange Rates

Maurice Obstfeld

No 233187, Center for International and Development Economics Research (CIDER) Working Papers from University of California-Berkeley, Department of Economics

Abstract: The multilateral real exchange rates of major industrial countries often contain deterministic time trends. This note develops a simple stochastic model of a small open economy with a deterministically trending real exchange rate. Real exchange rate trends are caused by differential productivity growth in tradables and nontradables. Although the model assumes complete price flexibility, it can produce a correlation between the real exchange rate and the international real interest-rate differential similar to the one that arises in sticky-price overshooting models dominated by monetary shocks.

Keywords: Research; Methods/; Statistical; Methods (search for similar items in EconPapers)
Pages: 31
Date: 1993-02
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Citations: View citations in EconPapers (86)

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Working Paper: Model Trending Real Exchange Rates (1993)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ucbewp:233187

DOI: 10.22004/ag.econ.233187

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