Using survey data of market expectations, we ask which popular exchange rate models appear to be consistent with expectation formation of market forecasters. Exchange rate expectations are found to be correlated with inflation differentials and productivity differentials, indicating that the...

The canonical predictions of intertemporal open-economy macro models are tested by a structural VAR analysis of Group of Seven countries. The analysis is distinguished from the previous literature in that it adopts minimal assumptions for identification. Consistent with a large set of...

We develop a theory-based model of equilibrium exchange rates incorporating factors that have been found to matter empirically. The model provides insights into how variables should be measured and what are appropriate cross-country restrictions. We estimate this model using a panel of 12...

We revisit the time-honored link between productivity and the real exchange rate. Consistent with the traditional view, we find that higher labor productivity tends to lead to appreciation of the real exchange rate. Contrary to the traditional view, however, we find that the positive...

This paper employs newly constructed measures for productivity differentials, external imbalances, and commodity terms of trade to estimate a panel cointegrating relationship between real exchange rates and a set of fundamentals for a sample of 48 industrial countries and emerging markets. It...