Long-run determinants of the Irish real exchange rate |
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| Authors: | Philip R Lane Gian Maria Milesi-Ferretti |
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| Institution: | 1. Federal University of Ceara, Department of Applied Economics , Fortaleza, Brazilbte@unh.edu;3. University of New Hampshire, Department of Economics , Durham, NH 03824, USA |
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| Abstract: | Smooth adjustment to real exchange rate shifts is one of the major challenges facing the Irish economy under EMU. Rather than assume purchasing power parity, the long-run real exchange rate is modelled as time-varying, being determined by relative output levels, the terms of trade and the net foreign asset position. It is shown that these factors account for a large proportion of the long-run movement in the Irish real exchange rate. |
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