Real exchange rates and the relative prices of non-traded and traded goods
Subtitle: an empirical analysis
By: by Jan J J Groen and Clare Lombardelli.
Contributors: Lombardelli, Clare, 1978-; Bank of England.
Series: Working paper,; no. 223; Working paper (Bank of England : Online) ;; no.223.
Publisher: Bank of England
Published: 2004
Place of publication: London
Language: eng
Format: Electronic resource
Subjects: Foreign exchange rates -- Great Britain.
Description: "This paper provides an empirical analysis of the decomposition of UK real exchange rates into the relative price of traded goods and the ratio of the relative price of non-traded to traded goods, and tests the prediction that deviations from the law of one price in tradable goods dominate real exchange rate variability only in the short run. UK bilateral real exchange rates are examined relative to a sample of six main OECD partners. The existence of a long-run relationship between real exchange rates and these corresponding relative price ratios is analysed using cointegrated vector autoregressive models. These show only limited evidence of a cointegrating relationship. The paper quantifies the severity of the deviations from the law of one price, and shows that these deviations are persistent relative to the length of the sample period. This motivates the use of a multi-country panel cointegration-testing framework, which produces evidence of a long-run relationship between the real exchange rate and the non-tradable component"--Bank of England web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 4/12/2005.
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Mode of access: World Wide Web.