The authors are grateful to the following people who generously provided helpful and constructive comments on an earlier version of this article: two anonymous referees, an anonymous associate editor and the managing editor, Andrew Scott. They are also grateful to comments from seminar participants at Fordham University and the Universities of Cambridge and Warwick. In addition, the authors are indebted to Jay Shambaugh, who kindly provided helpful advice on the dating of de facto nominal exchange rate regimes. The authors alone are responsible, however, for any errors that may remain.
Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod-Balassa-Samuelson Effect?*
Article first published online: 20 SEP 2008
© The Author(s). Journal compilation © Royal Economic Society 2008
The Economic Journal
Volume 118, Issue 532, pages 1742–1763, October 2008
How to Cite
Lothian, J. R. and Taylor, M. P. (2008), Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod-Balassa-Samuelson Effect?. The Economic Journal, 118: 1742–1763. doi: 10.1111/j.1468-0297.2008.02188.x
- Issue published online: 20 SEP 2008
- Article first published online: 20 SEP 2008
- Submitted: 19 September 2005 Accepted: 24 August 2007
Using data since 1820 for the US, the UK and France, we test for the presence of real effects on the equilibrium real exchange rate (the Harrod-Balassa-Samuelson, HBS effect) in an explicitly nonlinear framework and allowing for shifts in real exchange rate volatility across nominal regimes. A statistically significant HBS effect for sterling–dollar captures its long-run trend and explains a proportion of variation in changes in the real rate that is proportional to the time horizon of the change. There is significant evidence of nonlinear reversion towards long-run equilibrium and downwards shifts in volatility during fixed nominal exchange rate regimes.