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Structural Model of Real Exchange Rate with Emphasis on the Terms of Trade Effect

Fahimifard, Hamed | 2013

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 44309 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Abedini, Javad
  7. Abstract:
  8. Despite the relative weakness of exchange rate structural models in determination short term fluctuations, observations show that real exchange rate respond to some fundamental economic variables. Due to the growing foreign sector of national economies, recent studies pay special attention to the impact of terms of trade on currency exchange rate. In this study, a structural model of the real exchange rate between the 70 currencies and during the period 1980-2010 has been developed in the context of panel data. Empirical micro-founded model are based on theoretical general equilibrium. Important features of such study are stationary of variables and causality test. Determination the effect of terms of trade on real exchange rate is other considerations. Conclusion of static and dynamic models have confirmed this impact on the real exchange rate and Claims that the improved terms of trade, in general, cause a higher real exchange rate or the domestic currency devaluation. So that a percentage increases in the terms of trade -ceteris paribus- the real exchange rate increase in 0.1696 percent. Causality test results point towards the direction of causality is from terms of trade to the real exchange rate. In addition, other structural variables such as trade balance, the real interest rate and technological progress influenced real exchange rate. Estimate models between Oil and non-oil countries suggest that exchange rate against non-oil countries, has a significant impact on the real exchange rate in oil producing countries. The reason for this can be explained by controlled the supply of foreign exchange reserves in the oil producing countries despite lacking the same resources in the non-oil countries
  9. Keywords:
  10. Dynamic Panel Data Model ; Real Exchange Rate ; Terms of Trade ; General Equilibruim Model

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