This paper establishes the ability of a Real Business Cycle model to account for real exchange rate behaviour, using UK data. We show that a productivity simulation is capable of explaining initial real appreciation with subsequent depreciation to a lower steady state. The model is tested by the...

A Real Business Cycle model of the UK is developed to account for the behaviour of UK nonstationary macro data. The model is tested by the method of indirect inference, bootstrapping the errors to generate 95% confidence limits for a VECM representation of the data; we find the model can explain...

We extend the method of indirect inference testing to data that is not filtered and so may be non-stationary. We apply the method to an open economy real business cycle model on UK data. We review the method using a Monte Carlo experiment and find that it performs accurately and has good power....