Stock Prices and the Exchange Rate in a Structural Model with an Application to the Case of France

This paper investigates the relationship between stock prices and the real exchange rate suggested by some structural macroeconomic models such as Gavin[1989]. Adding stock prices to a conventional macroeconomic model allows us to examine the stock price-exchange rate relationship, and empirically variate system. French data are used to study the long run as well as short run relationships. The results suggest the usefulness of incorporating stock markets into such studies.