TY  - JOUR
AU  - Alquist,Ron
AU  - Chinn,Menzie D.
TI  - Productivity and the Euro-Dollar Exchange Rate Puzzle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8824
PY  - 2002
Y2  - March 2002
UR  - http://www.nber.org/papers/w8824
L1  - http://www.nber.org/papers/w8824.pdf
N1  - Author contact info:
Ron Alquist
University of Michigan
E-Mail: ralquist@umich.edu

Menzie D. Chinn
Dept. of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI 53706
Tel: 608/262-7397
Fax: 608/262-2033
E-Mail: mchinn@lafollette.wisc.edu
AB  - This paper documents the evidence for a productivity based model of the dollar/euro real exchange rate over the 1985-2001 period. We estimate cointegrating relationships between the real exchange rate, productivity, and the real price of oil using the Johansen (1988) and Stock-Watson (1993) procedures. We find that each percentage point in the US-Euro area productivity differential results in a five percentage point real appreciation of the dollar. This finding is robust to the estimation methodology, the variables included in the regression, and the sample period. We conjecture that productivity-based models cannot explain the observed patterns with the standard set of assumptions, and describe a case in which the model can be reconciled with the observed data.
ER  -