What's behind real exchange rate moves?

A new working paper from the Bank of England's economic research engine room looks into the reasons for past movements in exchange rates. In contrast to the "benchmark model" in this field, the paper, entitled "Accounting for the source of exchange rate movements: new evidence", finds an important role for nominal shocks in explaining real exchange rate fluctuations.

Summary

Considerable research has previously been carried out to try to explain past movements in exchange rates. We examine this

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