Working Paper: NBER ID: w11521
Authors: Menzie D. Chinn
Abstract: Several alternative measures of "effective" exchange rates are discussed in the context of their theoretical underpinnings and actual construction. Focusing on contemporary indices and recently developed econometric methods, the empirical characteristics of these differing series are examined, including the exchange rates for the U.S., the euro area and several East Asian countries. The issues that confront the applied economist or policymaker in using the measures of real effective exchange rates available are illustrated in several case studies from current interest: (i) evaluating exchange rate misalignment, (ii) testing the Balassa-Samuelson effect, (iii) estimating the price responsiveness of trade flows, and (iv) assessing the potential impact of competitive devaluations.
Keywords: No keywords provided
JEL Codes: F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exchange rate misalignment (F31) | currency crises (F31) |
| productivity differentials between tradable and non-tradable sectors (F16) | real exchange rate (F31) |
| increase in productivity in the tradable sector (O49) | appreciation of the real exchange rate (F31) |
| relative price of domestic goods (P22) | imports (F14) |
| relative price of domestic goods (P22) | exports (F10) |
| strategic interactions in exchange rate policies (F31) | competitive devaluations (F31) |