International trade and factor productivity as determinants of the real effective exchange rate

ABSTRACT

Using panel time-series models that deal with the problems of potential endogeneity and cross-sectional dependence, while also allowing for cross-country heterogeneity in the parameters of interest, we demonstrate that trade openness produces a depreciation of the real effective exchange rate.

KEYWORDS:

• Real effective exchange rate
• trade openness
• terms of trade
• total factor productivity

JEL CLASSIFICATION:

• F13
• F31
• F41

Disclosure statement

No potential conflict of interest was reported by the authors.