Real Exchange Rates Over the Past Two Centuries

Using data since 1820 for the US, the UK and France, we test for the presence of real effects on the equilibrium real exchange rate (the Harrod-Balassa-Samuelson, HBS effect) in an explicitly nonlinear framework and allowing for shifts in real exchange rate volatility across nominal regimes. A statistically significant HBS effect for sterling-dollar captures its long-run trend and explains a proportion of variation in changes in the real rate that is proportional to the time horizon of the change. There is significant evidence of nonlinear reversion towards long-run equilibrium and downwards shifts in volatility during fixed nominal exchange rate regimes. Copyright © The Author(s). Journal compilation © Royal Economic Society 2008

Econometrics · Economics · Exchange rate · Keynesian economics · Liberian dollar · Mean reversion · Monetary economics · Nonlinear system · Us dollar · Volatility (finance · Economic Policies and Impacts · Economic theories and models · Monetary Policy and Economic Impact

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