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| Author: | Spilimbergo, A. Vamvakidis, A. |
| Title: | Real Effective Exchange Rate and the Constant Elasticity of Substitution Assumption |
| Journal: | Journal of International Economics
2003 : AUG, VOL. 60:2, p. 337-354 |
| Index terms: | EXCHANGE RATES FORECASTING INTERNATIONAL TRADE EXPORTS |
| Language: | eng |
| Abstract: | The real effective exchange rate (REER) is an aggregation of several bilateral real exchange rates assuming constant elasticity of substitution (CES) between goods from different countries. The authors investigate the validity of the CES assumption by estimating manufacturing export equations for 56 countries over 26 years. Under the CES assumption, splitting the REER into two components should not increase the fit in an export equation and the coefficients on the two REERs should be equal. The authors reject both these implications and find that the export equations with two REERs-vs. OECD and vs. nonOECD countries-perform better than the traditional ones. |
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