International Parity Relationships and a Nonstationarity Real Exchange Rate : Germany Versus the US in the Post Bretton Woods Period
Juselius, Katarina and Macdonald, Ronald (2003) International Parity Relationships and a Nonstationarity Real Exchange Rate : Germany Versus the US in the Post Bretton Woods Period. Discussion paper. University of Strathclyde, Glasgow.
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Abstract
This paper examines the interrelations between purchasing power parity, uncovered interest parity, the term structure of interest rates and the Fisher real interest rate parity condition using cointegration analysis. Dynamic adjustment and feed-back effects are estimated jointly in a full system of equations. An important finding is that the very slow, though significant, price adjustment towards sustainable levels of real exchange rates, has been compensated by corresponding changes in the spread of long-term bond rates. Related to this is the strong empirical support for the weak exogeneity of long-term bond rates, signifying the importance of the large US trade deficits (i.e. the low levels of US savings) and, hence, their linkage to international finance. Altogether, the results suggest that the transmission mechanisms over the post Bretton Woods period have been significantly different from standard theoretical assumptions.
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Item type: Monograph(Discussion paper) ID code: 67697 Dates: DateEvent27 October 2003PublishedNotes: Discussion paper. Subjects: Social Sciences > Economic History and Conditions Department: Strathclyde Business School > Economics Depositing user: Pure Administrator Date deposited: 07 May 2019 10:32 Last modified: 25 May 2024 10:29 URI: https://strathprints.strath.ac.uk/id/eprint/67697