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Bivariate Assessments of Real Exchange Rates Using PPP Data

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  • Juan Zalduendo
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    Abstract

    This paper focuses on assessments of real exchange rates using PPP data and examines their limitations when these are based exclusively on bivariate estimations. It begins by presenting an analytical framework of the real exchange rate that shows that these estimations make many restrictive assumptions. In turn, the empirical evidence presented shows that the estimates are not robust to changes in sample, such as those that arise from differences in incomes per capita. The conclusion is that the bivariate assessment of real exchange rates do not control for the heterogeneity that exists across countries, thus limiting their usefulness. This critique of bivariate estimations does not apply however to multivariate approaches such as utilized by CGER

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/153.

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    Length: 26
    Date of creation: 01 Jun 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/153

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    Related research

    Keywords: Exchange rates; Purchasing power parity; Prices; exchange rate; ppp; real exchange rate; real exchange rates; exchange rate misalignment; exchange rate levels; exchange rate policy; exchange rate movements; current account balance; real exchange rate movements; foreign exchange; exchange rate economics; nominal exchange rate; market exchange rate; exchange rate appreciation; exchange rate movement; market exchange rates; foreign exchange transactions; current exchange rate; exchange rate determination;

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    16. Hinkle, Lawrence E. & Monteil, Peter J. (ed.), 1999. "Exchange Rate Misalignment: Concepts and Measurement for Developing Countries," OUP Catalogue, Oxford University Press, number 9780195211269, September.
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