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Exchange Rates and Prices: Sources of Sterling Real Exchange Rate Fluctuations 1973–94
Author(s) -
Astley Mark S.,
Garratt Anthony
Publication year - 2000
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/1468-0084.00184
Subject(s) - economics , exchange rate , econometrics , variance (accounting) , relative price , monetary economics , aggregate (composite) , materials science , accounting , composite material
We attempt to identify the sources of UK exchange rate and relative consumer price fluctuations by applying the Clarida and Gali (1994) extension of the Blanchard and Quah (1989) structural VAR method to UK data. We (r)nd that IS shocks underlay the majority of the variance of sterling real and nominal exchange rates. Aggregate supply (AS) shocks were the second most important source of such variations, while LM shocks played an extremely limited role. In contrast, the variance of UK relative consumer prices primarily reflected LM shocks.