Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod‐Balassa‐Samuelson Effect?

James R. Lothian · Mark P. Taylor

259 citations0/0 files storedThe Economic Journal

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Abstract

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 HarrodBalassa-Samuelson, HBS effect) in an explicitly nonlinear framework and allowing for shifts in real exchange rate volatility across nominal regimes. A statistically signi&cant HBS effect for sterling-dollar captures its longrun 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 signi&cant evidence of nonlinear reversion towards long-run equilibrium and downwards shifts in volatility during &xed nominal exchange rate regimes.

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References

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