| This thesis presents an empirical analysis of the medium term determinants of the US dollar effective exchange rate. Two different time series quarterly data have been constructed for the analysis, one data set from 1974 to 2004 and the other one from 1980 to 2004. Several empirical models and two different exchange rate specifications have been analyzed. Results indicate that productivity differences, the real price of oil and the current account all affect the real effective exchange rate. In the short run, the real price of oil has a negative and statistically significant effect in all models, implying that the rise in oil prices causes a depreciation of the US dollar. However, no long-term effect between the price of oil and the exchange rate was found. Productivity differences were found to have a negative and statistically significant effect in most cases, both in the short-run and the long-run. This suggests that if the US becomes more productive relative to its major trading partners, incomes and imports rise, causing depreciation of the US dollar. The current account was found to have a negative and statistically significant impact on the exchange rate, but only in the short-run. |
