'classical' PPP assumption of constant equilibrium real exchange rates. A prominent theory put together by Balassa (1964, Journal … that a non-constant real exchange rate equilibrium is induced by different productivity growth rates between countries …

, the paper applies a newly developed methodology based on infinite VAR theory featuring a dominant unit to a large set of … dollar shock, generalised impulse response function shocks and a global shock to risk aversion. Our results show that the way … depends crucially on the nature of the shock. This result is noteworthy given the apparent divergence in competitiveness …