The equilibrium approach to exchange rates: theory and tests
We characterize the equilibrium exchange rate in a general equilibrium economy without imposing strong restrictions on the output processes, preferences, or commodity market imperfections. The nominal exchange rate is determined by differences in initial wealths the currencies of richer countries te...
Gespeichert in:
| Hauptverfasser: | , , |
|---|---|
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Cambridge, Mass.
1996
|
| Schriftenreihe: | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series
5748 |
| Online-Zugang: | Volltext |
| Zusammenfassung: | We characterize the equilibrium exchange rate in a general equilibrium economy without imposing strong restrictions on the output processes, preferences, or commodity market imperfections. The nominal exchange rate is determined by differences in initial wealths the currencies of richer countries tend to be overvalued by PPP standards and by differences of marginal indirect utilities of total nominal spending. Changes in the exchange rate mirror differences in growth rates of real spending weighted by relative risk-aversion (which can be time-varying and can differ across countries), and in the case of non-homothetic utility functions, differences in inflation rates computed from marginal spending weights. Thus, standard regression or cointegration tests of PPP suffer from missing-variables biases and ignore variations in risk aversions across countries and over time. We also present cointegration tests of the version of the model with constant relative risk aversion (CRRA) and homothetic preferences. When nominal spending is given an independent role (next to prices) in the short-term dynamics, both PPP and the CRRA model become acceptable. |
| Beschreibung: | 42 S. graph. Darst. |
Internformat
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| 490 | 1 | |a National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |v 5748 | |
| 520 | |a We characterize the equilibrium exchange rate in a general equilibrium economy without imposing strong restrictions on the output processes, preferences, or commodity market imperfections. The nominal exchange rate is determined by differences in initial wealths the currencies of richer countries tend to be overvalued by PPP standards and by differences of marginal indirect utilities of total nominal spending. Changes in the exchange rate mirror differences in growth rates of real spending weighted by relative risk-aversion (which can be time-varying and can differ across countries), and in the case of non-homothetic utility functions, differences in inflation rates computed from marginal spending weights. Thus, standard regression or cointegration tests of PPP suffer from missing-variables biases and ignore variations in risk aversions across countries and over time. We also present cointegration tests of the version of the model with constant relative risk aversion (CRRA) and homothetic preferences. When nominal spending is given an independent role (next to prices) in the short-term dynamics, both PPP and the CRRA model become acceptable. | ||
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Datensatz im Suchindex
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| author | Apte, Prakash Sercu, Piet 1951- Uppal, Raman 1961- |
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| author_facet | Apte, Prakash Sercu, Piet 1951- Uppal, Raman 1961- |
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| id | DE-604.BV011189528 |
| illustrated | Illustrated |
| indexdate | 2024-07-09T18:05:29Z |
| institution | BVB |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-007504203 |
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| physical | 42 S. graph. Darst. |
| publishDate | 1996 |
| publishDateSearch | 1996 |
| publishDateSort | 1996 |
| record_format | marc |
| series | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| series2 | National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| spelling | Apte, Prakash Verfasser aut The equilibrium approach to exchange rates theory and tests Prakash Apte ; Piet Sercu ; Raman Uppal Cambridge, Mass. 1996 42 S. graph. Darst. txt rdacontent n rdamedia nc rdacarrier National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 5748 We characterize the equilibrium exchange rate in a general equilibrium economy without imposing strong restrictions on the output processes, preferences, or commodity market imperfections. The nominal exchange rate is determined by differences in initial wealths the currencies of richer countries tend to be overvalued by PPP standards and by differences of marginal indirect utilities of total nominal spending. Changes in the exchange rate mirror differences in growth rates of real spending weighted by relative risk-aversion (which can be time-varying and can differ across countries), and in the case of non-homothetic utility functions, differences in inflation rates computed from marginal spending weights. Thus, standard regression or cointegration tests of PPP suffer from missing-variables biases and ignore variations in risk aversions across countries and over time. We also present cointegration tests of the version of the model with constant relative risk aversion (CRRA) and homothetic preferences. When nominal spending is given an independent role (next to prices) in the short-term dynamics, both PPP and the CRRA model become acceptable. Sercu, Piet 1951- Verfasser (DE-588)130426458 aut Uppal, Raman 1961- Verfasser (DE-588)13042644X aut Erscheint auch als Online-Ausgabe National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 5748 (DE-604)BV002801238 5748 http://papers.nber.org/papers/w5748.pdf kostenfrei Volltext |
| spellingShingle | Apte, Prakash Sercu, Piet 1951- Uppal, Raman 1961- The equilibrium approach to exchange rates theory and tests National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series |
| title | The equilibrium approach to exchange rates theory and tests |
| title_auth | The equilibrium approach to exchange rates theory and tests |
| title_exact_search | The equilibrium approach to exchange rates theory and tests |
| title_full | The equilibrium approach to exchange rates theory and tests Prakash Apte ; Piet Sercu ; Raman Uppal |
| title_fullStr | The equilibrium approach to exchange rates theory and tests Prakash Apte ; Piet Sercu ; Raman Uppal |
| title_full_unstemmed | The equilibrium approach to exchange rates theory and tests Prakash Apte ; Piet Sercu ; Raman Uppal |
| title_short | The equilibrium approach to exchange rates |
| title_sort | the equilibrium approach to exchange rates theory and tests |
| title_sub | theory and tests |
| url | http://papers.nber.org/papers/w5748.pdf |
| volume_link | (DE-604)BV002801238 |
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