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Accounting for U.S. Regional Real Exchange Rates

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  • Chen, Lein-Lein
  • Choi, Seungmook
  • Devereux, John

Abstract

We examine the relationship between the relative price of nontradables and real exchange rate movements for fixed exchange rate regimes. Using BLS CPI data, we show that purchasing power parity holds strongly for tradables across U.S. regions. As a result, nontradables play a central role in U.S. regional real exchange rate movements. Indeed changes in the relative price of nontradables explain up to 80% of regional real exchange rate changes over medium and long run horizons. We also argue that nontradables can account for a large portion of real exchange rate changes internationally with high nontradables expenditure shares.

Suggested Citation

  • Chen, Lein-Lein & Choi, Seungmook & Devereux, John, 2006. "Accounting for U.S. Regional Real Exchange Rates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 229-244, February.
    • Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:1:p:229-244
    DOI: 10.1353/mcb.2006.0013
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    Cited by:

    1. Jan Marc Berk & Job Swank, 2007. "Regional real exchange rates and Phillips curves in monetary unions - Evidence from the US and EMU," DNB Working Papers 147, Netherlands Central Bank, Research Department.
    2. Berk, Jan Marc & Swank, Job, 2011. "Price level convergence and regional Phillips curves in the US and EMU," Journal of International Money and Finance, Elsevier, vol. 30(5), pages 749-763, September.
    3. Lein‐Lein Chen & Seungmook Choi & John Devereux, 2015. "Explaining price level differences: New evidence on the Balassa–Samuelson effect," Southern Economic Journal, John Wiley & Sons, vol. 82(1), pages 81-99, July.
    4. Maria Eleftheriou & Nikolas A. Müller-Plantenberg, 2018. "The Purchasing Power Parity Fallacy: Time to Reconsider the PPP Hypothesis," Open Economies Review, Springer, vol. 29(3), pages 481-515, July.
    5. Chen, Lein-Lein & Choi, Seungmook & Devereux, John, 2015. "Accounting for real exchange rate changes at long time horizons," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 264-277.
    6. Kiril Tochkov, 2021. "Regional real exchange rates and growth: Evidence from resource‐based regional economies," Review of International Economics, Wiley Blackwell, vol. 29(3), pages 626-640, August.

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