Real Exchange Rates in the Developing Countries: Concepts and Measure- Ment

60 Pages Posted: 28 Jun 2004 Last revised: 25 Jul 2022

See all articles by Sebastian Edwards

Sebastian Edwards

University of California, Los Angeles (UCLA) - Global Economics and Management (GEM) Area; National Bureau of Economic Research (NBER)

Date Written: April 1989

Abstract

This paper deals with three important issues related to real exchange rates. First, it discusses the analytical concept of real exchange rate (RER) placing particular emphasis on providing an operational definition for the equilibrium real exchange rate. Of course, once this concept is defined we can begin to discuss in a meaningful way what we mean by real exchange rate misalignment, or deviations of the actual RER from its equilibrium value. Second, this paper deals with problems associated with measuring real exchange rates. Several proposals are analyzed and the more serious problems encountered when attempting to compute RER's in the developing countries are discussed. And third, I analyze the actual behavior of RER's in a number of developing countries. Here, issues related to the behavior of alternative indexes and to the statistical properties of real exchange rates are emphasized. Additionally, I study the real consequences of increased real exchange rate volatility.

Suggested Citation

Edwards, Sebastian, Real Exchange Rates in the Developing Countries: Concepts and Measure- Ment (April 1989). NBER Working Paper No. w2950, Available at SSRN: https://ssrn.com/abstract=227207

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