Determinants of the equilibrium real exchange rate

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Title: Determinants of the equilibrium real exchange rate
Authors: Neary, J. Peter
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Date: Apr-1987
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.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Subject LCSH: Equilibrium (Economics)
International trade
States, Small--Economic conditions
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Working Papers & Policy Papers

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