Finance and Financial Management
Using data for 1820-2001 for the US, the UK and France, we test for the presence of real effects on the equilibrium real exchange rate (the Harrod-Balassa-Samuelson, HBS effect) in an explicitly nonlinear framework and allowing for shifts in real exchange rate volatility. A statistically significant HBS effect for sterling-dollar captures its long-run trend and explains some 40% of its variation. For both real exchange rates there is significant evidence of nonlinear mean reversion towards long-run equilibrium and downwards shifts in volatility corresponding closely to the classical gold standard and Bretton Woods periods.
Lothian, James R. and Taylor, Mark P., "Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod-Balassa-Samuelson Effect?" (2004). CRIF Working Paper series. Paper 9.