The characteristics of recent capital inflows into Latin America are discussed. It is argued that these inflows are partly explained by conditions outside the region, like recession in the United States and lower international interest rates. This suggests the possibility that a reversal of...

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...

This paper presents a theoretical and empirical analysis of policies aimed at setting a more depreciated level of the real exchange rate. An intertemporal optimizing model suggests that, in the absence of changes in fiscal policy, a more depreciated level of the real exchange can only be...

Ireland has had significant competitiveness gains in the 1990s on the basis of the standard manufacturing unit labor cost-based measure of the real effective exchange rate. A handful of sectors mostly dominated by multinational companies have accounted for the bulk of value added in production....

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...

A dynamic dependent-economy model is developed to investigate the role of the real exchange rate in determining the effects of foreign aid. If capital is perfectly mobile between sectors, untied aid has no longrun impact on the real exchange rate. A decline in the traded sector occurs because...

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...