Determinants of the equilibrium real exchange rate

J. Peter Neary

No 198748, Working Papers from School of Economics, University College Dublin

Abstract: 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.

Keywords: Equilibrium (Economics); International trade; States, Small--Economic conditions (search for similar items in EconPapers)
Date: 1987-04
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http://hdl.handle.net/10197/1434 First version, 1987 (application/pdf)

Related works:
Journal Article: Determinants of the Equilibrium Real Exchange Rate (1988)
Working Paper: Determinants of the Equilibrium Real Exchange Rate (1987)
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