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Real Exchange Rates and Macroeconomics: A Selective Survey

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Rudiger Dornbusch

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Abstract

This paper discusses exchange rate issues in advanced and in developing countries. For the determination of exchange rates among industrialized countries the key question is the following: What is the right framework -- the monetary approach, the equilibrium approach, the new classical approach or the macroeconomic model in the tradition of Mundell-Fleming. To shed light on that question two empirical problems are considered: What is known about the behavior of real exchange rates and how well do alternative models explain the relation among interest rates, expected depreciation and actual depreciation. The second half of the paper discusses real exchange rates in developing countries. This strand of literature has become important in the context of adjustment programs. We focus on the relation between real exchange rates and the profitability of capital. The model highlights the sharp discrepancy between the mobility of capital (even physical capital, in the long run) and the immobility of labor.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2775.

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Date of creation: Feb 1990
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Publication status: published as The Scandanavian Journal of Economics, Vol. 91, No. 2, pp. 401-432, (1989).
Handle: RePEc:nbr:nberwo:2775

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  1. John Sarich, 2006. "What do we know about the real exchange rate? A classical cost of production story," Review of Political Economy, Taylor and Francis Journals, vol. 18(4), pages 469-496, October. [Downloadable!] (restricted)
  2. Luca Antonio Ricci & Ronald MacDonald, . "PPP and the Balassa Samuelson Effect: The Role of the Distribution Sector," IMF Working Papers 01/38, International Monetary Fund. [Downloadable!]
    Other versions:
  3. Dimitris Georgoutsos & George Kouretas, 2001. "Common Stochastic Trends In International Stock Markets: Testing In An Integrated Framework," Working Papers 0104, University of Crete, Department of Economics. [Downloadable!]
  4. Anwar Shaikh, 1999. "Real Exchange Rates and the International Mobility of Capital," Macroeconomics 9904002, EconWPA. [Downloadable!]
  5. David C. Parsley & Shang-Jin Wei, 2003. "A Prism into the PPP Puzzles: The Micro-foundations of Big Mac Real Exchange Rates," NBER Working Papers 10074, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Dimitrios Malliaropulos & Ekaterini Panopoulou & Nikitas Pittis & Theologos Pantelidis, 2006. "The Contribution of Growth and Interest Rate Differentials to the Persistence of Real Exchange Rates," The Institute for International Integration Studies Discussion Paper Series iiisdp135, IIIS. [Downloadable!]
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  7. Corsetti, Giancarlo & Dedola, Luca, 2003. "Macroeconomics of International Price Discrimination," CEPR Discussion Papers 3710, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Anwar M. Shaikh, . "Explaining the U.S. Trade Deficit," Economics Policy Note Archive 00-1, Levy Economics Institute, The. [Downloadable!]
  9. Raúl Labán & Felipe Larraín, 1997. "El Retorno de los Capitales Privados a Chile en los Noventa: Causas, Efectos y Reacciones de Política," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 34(103), pages 339-362. [Downloadable!]
  10. Dionysios Chionis, 2002. "The Hysteretic Effects on the Real Exchange Rates," International Review of Applied Economics, Taylor and Francis Journals, vol. 16(4), pages 451-463, October. [Downloadable!] (restricted)
  11. Panayiotis Diamantis & Dimitris Georgoutsos & George Kouretas, 2001. "The Monetary Approach in the Presence of I(2) Components: A Cointegration Analysis of the Official and Black Market for Foreign Currency in Latin America," Working Papers 0108, University of Crete, Department of Economics. [Downloadable!]
  12. Talan Iscan & Lars Osberg, 1998. "Does Inflation Affect Output Varibility? Evidence from 40 Years of US Data," Department of Economics at Dalhousie University working papers archive stabilus, Dalhousie, Department of Economics. [Downloadable!]
  13. David C. Parsley & Shang-Jin Wei, 2003. "The Micro-foundations of Big Mac Real Exchange Rates," IEHAS Discussion Papers 0306, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
  14. Boštjan Jazbec, 2002. "Balassa-Samuelson Effect in Transition Economies: The Case of Slovenia," William Davidson Institute Working Papers Series 507, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  15. HSING, Yu, 2006. "Determinants Of Exchange Rate Fluctuations For Venezuela: Application Of An Extended Mundell-Fleming Model," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(1). [Downloadable!] (restricted)
  16. Anwar Shaikh & Rania Antonopoulos, 1998. "Explaining long term exchange rate behavior in the United States and Japan," Macroeconomics 9809011, EconWPA. [Downloadable!]
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