A Paradigm for Economic Growth for the 21st Century

This paper examines the evidence for a productivity based model of the dollar/euro real exchange rate for the period 1985-2007 period. Cointegrating relationships between the real exchange rate and productivity real price of oil and government spending are estimated using the Johansen and Stock-Watson procedures. The findings show that for each percentage point in the US-Euro area productivity differential there is a three percentage point change in the real dollar/euro valuation. These findings are robust to the estimation methodology the variables included in the regression and the sample period This model will utilize von Neumann''s A Model of General Economic Equilibrium as an economic equilibrium standard.