Time series analysis for the Euro Area requires the availability of sufficiently long historical data series, but the appropriate construction methodology has received little attention. The benchmark dataset, developed by the European Central Bank for use in its Area Wide Model (AWM), is based...

Empirical examinations of the relationship between the real exchange rate and the terms of trade are hampered by the need to control for other factors. In some studies these controls are not considered, and in others they are imposed in an ad hoc manner. The use of a latent factor model for real...