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Determinants of the equilibrium real exchange rate
Neary, J. Peter
This note presents a compact derivation of the determinants of changes in the equilibrium real exchange rate (the inverse of the price index of nontraded goods relative to traded goods), in a small open economy with any number of goods and factors. It is shown that the change in the real exchange rate equals a simple weighted sum of the differences between marginal propensities to consume and to produce individual nontraded goods. Implications of the result are noted for a variety of applied questions, including the effects of foreign aid, the "Dutch disease" and purchasing power parity comparisions between countries. A hard copy is available in UCD Library at GEN 330.08 IR/UNI
Keyword(s): Equilibrium (Economics); International trade; States, Small--Economic conditions
Publication Date:
2009
Type: Working paper
Peer-Reviewed: Unknown
Language(s): English
Institution: University College Dublin
Publisher(s): University College Dublin. School of Economics
File Format(s): other; application/pdf
First Indexed: 2012-08-25 05:22:26 Last Updated: 2018-10-11 15:44:00