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Title: Modelling the UK real effective exchange rate index : A purchasing power parity framework
Author: Pollock, A. C.
ISNI:       0000 0001 3493 9890
Awarding Body: University of the West of Scotland
Current Institution: University of the West of Scotland
Date of Award: 1988
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The aim of the thesis is to explain short and medium term movements of the U.K. real effective exchange rate index from 1972 to 1984, within a relative purchasing power parity framework. This index is measured using both consumer and wholesale price indices. Movements are examined within a model that incorporates trade flow and asset market mechanisms. In order to validate the model, consideration of time series analysis, the measurement of expectations and the econometric estimation of the model are undertaken. The time series characteristics of the U.K. real and nominal effective exchange rate index are examined using regression, correlation, spectral and non-parametric statistical techniques. These imply that U.K. real exchange rate movements follow a quasi-random walk. Violations from the random walk occur partly due to the use of period averages in the construction of the index and partly from medium term time dependence. The empirical analysis of expectations is undertaken in a rational expectations framework. It is found that the best short term predictor of the nominal effective exchange rate index is a constructed forward effective exchange rate index. However, short term exchange rate movements appear largely due to 'news'. In the longer term, exchange rate expectations appear to be influenced by movements in the real current balance of goods and serVIces. The econometric analysis gives results broadly consistent with the model. This supports the view that the U.K. real effective exchange rate index returns to its equilibrium value in the long term, with movements in the short and medium terms eventually being corrected by trade flow and asset market mechanisms
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: Exchange rate movements