Exchange Rates, Numéraires and Real Exchange Rates in Global Computable General Equilibrium Models

Scott McDonald and Karen Thierfelder

No 332772, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: The analyses in this paper explore the properties and roles of numéraire, real and nominal exchange rates in the context of comparative static global CGE models. The arguments are illustrated using variants of the R23 (McDonald, et al., 2014) and GLOBE 2 (McDonald et al., 2013) CGE models, where these models have been extended to encompass the numéraire settings found in the GTAP (Hertel et al., 2007) family of models. How the concept of a real exchange rate operates within CGE models is explored in the context of both single country and global CGE models. The analyses are then extended to demonstrate that all global CGE models must include exchange rates, whether or not they are explicitly recognised. The analyses and results demonstrate that all global CGE models require exchange rates and (r+1) numéraire. It is also demonstrated that, unlike the case of single country models, the choice of numéraire settings impacts on the results for real variables in the models and that this can be traced back to the role of exchange rates in the model. It is therefore argued that global CGE models need to recognise the role of exchange rates, whether or not they are explicitly identified, when interpreting the results produced by the models

Keywords: Research; Methods/Statistical; Methods (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:332772

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