Lahtinen Markus | Akateeminen Kirjakauppa

First essay.The aim of this paper is to identify and investigate empirically the long-run determinants of real exchange rate fluctuations between Germany(Euro-zone) and the United States since the collapse of Bretton Woods system. This study uses the multivariate cointegration technique to find out steady state relations of the real exchange rate.Real oil price is shown to be an important factor for the real exchange rate movements between the German mark and the U.S. dollar. When the oil price shock is included into the estimation vector, we can also identify the classical Harrod-Balassa-Samuelson condition not generally found between the German mark and the U.S. dollar. Second essay.The aim of this paper is to discuss the determinants of the U.S. dollar real exchange rate fluctuation. We focus our analysis on the exchange rate effect on tradable prices. We explicitly consider the effects of profit maximizing foreign firms’ entry decisions on the domestic tradable prices through the supply changes after a large appreciation.If firms face sunk entry costs when breaking into foreign markets, the extent of pass-through will depend on the expected changes of the exchange rate. Typically, exchange rate uncertainty is determined by the volatility of a continuous stochastic process. We extend the discussion also to consider possible jumps in the time path of the expected exchange rate. Finally, an interesting perspective is provided by a real option approach that emphasizes dynamic supply effects through sunk costs and uncertainty. Third essay.The aim of this paper is to construct a simple nonlinear model for the U.S. dollar ­ euro real exchange rate. The nonlinear model considered allows the adjustment towards long-run equilibrium to be sudden as well as smooth. We found that the adjustment is sudden.