The Behavior of the Real Exchange Rate Under Fixed and Floating Exchange Rate Regimes |
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Authors: | Dibooglu Selahattin Koray Faik |
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Affiliation: | (1) Department of Economics, Southern Illinois University, Carbondale, IL, 62901-4515;(2) Department of Economics, Louisiana State University, Baton Rouge, LA, 70803-6306 |
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Abstract: | This article investigates the behavior of real exchange rates under fixed and flexible exchange rates. Using data from both the Bretton Woods and the modern floating periods, we decompose real exchange rate movements into components attributable to supply shocks, real demand shocks, monetary shocks, capital flows shocks, and real oil price shocks. Empirical results show that real demand shocks are an important source of real exchange rate movements under both fixed and flexible rates, while monetary shocks are negligible. Supply and oil price shocks seem to be more important under Bretton Woods, while capital flows shocks seem to explain a relatively higher proportion of real exchange rate movements under the modern floating period. |
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Keywords: | real exchange rates exchange rate systems |
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