Mapping a country's competitive position: a real exchange rate approach
AbstractPurpose – The observed real exchange rate, measured as an effective index of real labour costs, may serve as a base for the evaluation of the Portuguese economy's competitiveness. The purpose of this paper is to evaluate the positioning of the real exchange rate, throughout time, against a benchmark that guarantees external macroeconomic equilibrium (balanced fundamental account). Design/methodology/approach – This paper uses the effective real exchange rate as an indicator of Portugal's competitive position in relation to its major trading partners (fundamental equilibrium exchange rate approach using the unit labour costs). Findings – The authors found evidence that the real exchange rate has been persistently overvalued since the early 1990s. The evolution of this situation, which is harmful for the national economy, does not evidence the return to a path that may ensure external equilibrium for Portugal. The results show evidence of significant overvaluation of the Portuguese real exchange rate when compared to its estimated equilibrium level. In order to achieve a balanced fundamental account and considering a margin of error of 5 per cent, the real exchange rate needs to depreciate between 27.69 and 30.61 per cent. Originality/value – The relevance of the real effective exchange rate as a macroeconomic indicator arises from its role as a measure of national competitiveness. Computed as a measure of the difference of international prices, adjusted to the same unit of measurement, it represents the relative price of goods between countries, determining where this same price may be higher or lower. According to Krugman and Obstfeld, the manipulation of the real effective exchange rate allows one country to adjust its level of competitiveness against its trading partners.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Studies in Economics and Finance.
Volume (Year): 28 (2011)
Issue (Month): 3 (August)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Harris).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.