Accounting for U.S. Real Exchange Rate Changes

Accounting for U.S. Real Exchange Rate Changes
Author: Charles Engel
Publisher:
Total Pages: 68
Release: 1995
Genre: Consumer goods
ISBN:

Download Accounting for U.S. Real Exchange Rate Changes Book in PDF, Epub and Kindle

This study measures the proportion of U.S. real exchange rate movements that can be accounted for by movements in the relative prices of non-traded goods. The decomposition is done at all possible horizons that the data allow -- from one month up to thirty years. The accounting is performed with five different measures of non-traded goods prices and real exchange rates, for exchange rates of the U.S. relative to a number of other high income countries in each case. The outcome is surprising -- relative prices of non-traded goods appear to account for essentially none of the movement of U.S. real exchange rates at any horizon. Only for one crude measure, which uses the aggregate producer price index as an index of traded goods prices, do non-traded goods prices seem to account for more than a tiny portion of real exchange rate changes. This pattern appears to be true even during fixed nominal exchange rate episodes. Special attention is paid to the U.S. real exchange rate with Japan. The possibility of mismeasurement of traded goods prices is explored.

Accounting for U.S. Real Exchange Rate Changes

Accounting for U.S. Real Exchange Rate Changes
Author: Charles M. Engel
Publisher:
Total Pages: 0
Release: 1999
Genre:
ISBN:

Download Accounting for U.S. Real Exchange Rate Changes Book in PDF, Epub and Kindle

This study measures the proportion of U.S. real exchange rate movements that can be accounted for by movements in the relative prices of nontraded goods. The decomposition is done at all possible horizons that the data allow--from one month up to 30 years. The accounting is performed with five different measures of nontraded-goods prices and real exchange rates, for exchange rates of the United States relative to a number of other high-income countries in each case. The outcome is surprising: relative prices of nontraded goods appear to account for almost none of the movement of U.S. real exchange rates. Special attention is paid to the U.S. real exchange rate with Japan. The possibility of mismeasurement of traded-goods prices is explored.

Exchange Rate Policies

Exchange Rate Policies
Author: Charles Engel
Publisher: DIANE Publishing
Total Pages: 32
Release: 2010-08
Genre: Business & Economics
ISBN: 1437929117

Download Exchange Rate Policies Book in PDF, Epub and Kindle

Modern macroeconomic theory teaches us new lessons about exchange rates: Currency depreciations or appreciations that change the relative competitiveness of producers in different countries are undesirable from a global perspective if they lead to relative prices that do not reflect the true relative costs of production. ¿External balance¿ does not mean that trade balances should be zero, but rather that global resources are allocated efficiently. The implications of this insight for the role of the exchange rate in monetary policy are explored here. Some of the traditional arguments for purely floating exchange rates are challenged by this approach. Also briefly considers sterilized intervention and comments on the role of international reserves.

Large Devaluations and the Real Exchange Rate

Large Devaluations and the Real Exchange Rate
Author: Ariel T. Burstein
Publisher:
Total Pages: 66
Release: 2004
Genre: Devaluation of currency
ISBN:

Download Large Devaluations and the Real Exchange Rate Book in PDF, Epub and Kindle

"In this paper we argue that the primary force behind the large drop in real exchange rates that occurs after large devaluations is the slow adjustment in the price of nontradable goods and services. Our empirical analysis uses data from five large devaluation episodes: Argentina (2001), Brazil (1999), Korea (1997), Mexico (1994), and Thailand (1997). We conduct a detailed analysis of the Argentina case using disaggregated CPI data, data from our own survey of prices in Buenos Aires, and scanner data from supermarkets. We assess the robustness of our findings by studying large real-exchange-rate appreciations, medium devaluations, and small exchange-rate movements"--National Bureau of Economic Research web site.

Accounting for real exchange rates using micro-data

Accounting for real exchange rates using micro-data
Author: Mario J. Crucini
Publisher:
Total Pages: 40
Release: 2012
Genre: Economics
ISBN:

Download Accounting for real exchange rates using micro-data Book in PDF, Epub and Kindle

The classical dichotomy predicts that all of the time series variance in the aggregate real exchange rate is accounted for by non-traded goods in the CPI basket because traded goods obey the Law of One Price. In stark contrast, Engel (1999) found that traded goods had comparable volatility to the aggregate real exchange rate. Our work reconciles these two views by successfully applying the classical dichotomy at the level of intermediate inputs into the production of final goods using highly disaggregated retail price data. Since the typical good found in the CPI basket is about equal parts traded and non-traded inputs, we conclude that the classical dichotomy applied to intermediate inputs restores its conceptual value.

Accounting for Persistence and Volatility of Good-level Real Exchange Rates

Accounting for Persistence and Volatility of Good-level Real Exchange Rates
Author: Mario John Crucini
Publisher:
Total Pages: 60
Release: 2008
Genre: Foreign exchange rates
ISBN:

Download Accounting for Persistence and Volatility of Good-level Real Exchange Rates Book in PDF, Epub and Kindle

Volatile and persistent real exchange rates are observed not only in aggregate series but also in the individual good level data. Kehoe and Midrigan (2007) recently showed that, under a standard assumption on nominal price stickiness, empirical frequencies of micro price adjustment cannot replicate the time-series properties of the law-of-one-price deviations. We extend their sticky price model by combining good specific price adjustment with information stickiness in the sense of Mankiw and Reis (2002). Under a reasonable assumption on the money growth process, we show that the model fully explains both persistence and volatility of the good-level real exchange rates. Furthermore, our framework allows for multiple cities within a country. Using a panel of U.S.-Canadian city pairs, we estimate a dynamic price adjustment process for each 165 individual goods. The empirical result suggests that the dispersion of average time of information update across goods is comparable to that of average time of price adjustment.--Author's description

Real Exchange Rates and Macroeconomics

Real Exchange Rates and Macroeconomics
Author: Rudiger Dornbusch
Publisher:
Total Pages: 70
Release: 1988
Genre: Foreign exchange
ISBN:

Download Real Exchange Rates and Macroeconomics Book in PDF, Epub and Kindle

This paper discusses exchange rate issues in advanced and in developing countries. For the determination of exchange rates among industrialized countries the key question is the following: What is the right framework -- the monetary approach, the equilibrium approach, the new classical approach or the macroeconomic model in the tradition of Mundell-Fleming. To shed light on that question two empirical problems are considered: What is known about the behavior of real exchange rates and how well do alternative models explain the relation among interest rates, expected depreciation and actual depreciation. The second half of the paper discusses real exchange rates in developing countries. This strand of literature has become important in the context of adjustment programs. We focus on the relation between real exchange rates and the profitability of capital. The model highlights the sharp discrepancy between the mobility of capital (even physical capital, in the long run) and the immobility of labor.

PPP Strikes Back

PPP Strikes Back
Author: Mr. Haroon Mumtaz
Publisher: International Monetary Fund
Total Pages: 43
Release: 2003-04-01
Genre: Business & Economics
ISBN: 1451895534

Download PPP Strikes Back Book in PDF, Epub and Kindle

We show the importance of a dynamic aggregation bias in accounting for the PPP puzzle. We prove that established time-series and panel methods substantially exaggerate the persistence of real exchange rates because of heterogeneity in the dynamics of disaggregated relative prices. When heterogeneity is properly taken into account, estimates of the real exchange rate half-life fall dramatically, to little more than one year, or significantly below Rogoff''s "consensus view" of three to five years. We show that corrected estimates are consistent with plausible nominal rigidities, thus, arguably, solving the PPP puzzle.