IDEAS home Printed from https://ideas.repec.org/a/bla/ausecp/v41y2002i4p369-381.html
   My bibliography  Save this article

The Real Exchange Rate Always Floats

Author

Listed:
  • Thorvaldur Gylfason

Abstract

This paper makes two main points. First, irrespective of nominal exchange rate arrangements, the real exchange rate always floats - if not through nominal exchange rate adjustment, then through price change. Further, because prices and wages tend to be sticky, the adjustment of real exchange rates towards long-run equilibrium takes time, as witnessed by long-lasting currency misalignments around the world. In second place, real exchange rates are rather likely to fluctuate on their way towards long-run equilibrium because of the dynamic interaction between real exchange rates and the current account or, put differently, because the structure of lags with which exchange rates impact the volume of exports and imports may give rise to oscillatory behaviour. Copyright Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia 2002.

Suggested Citation

  • Thorvaldur Gylfason, 2002. "The Real Exchange Rate Always Floats," Australian Economic Papers, Wiley Blackwell, vol. 41(4), pages 369-381, December.
  • Handle: RePEc:bla:ausecp:v:41:y:2002:i:4:p:369-381
    as

    Download full text from publisher

    File URL: http://www.blackwell-synergy.com/links/doi/10.1111/1467-8454.00171
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    2. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-1042, November.
    3. Morris Goldstein & Mohsin S. Khan, 1976. "Large versus Small Price Changes and the Demand for Imports (Demande d'importation et modification forte ou faible des prix) (Grandes y pequeñas variaciones de precios y la demanda de importación)," IMF Staff Papers, Palgrave Macmillan, vol. 23(1), pages 200-225, March.
    4. Susan Schadler, 1977. "Sources of Exchange Rate Variability: Theory and Empirical Evidence (Sources des variations de taux de change: analyse de la théorie et observation empirique) (Fuentes de variabilidad del tipo de cam," IMF Staff Papers, Palgrave Macmillan, vol. 24(2), pages 253-296, July.
    5. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    6. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
    7. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    8. Mark P. Taylor, 2003. "Purchasing Power Parity," Review of International Economics, Wiley Blackwell, vol. 11(3), pages 436-452, August.
    9. Michael C. Deppler & Duncan M. Ripley, 1978. "The World Trade Model: Merchandise Trade," IMF Staff Papers, Palgrave Macmillan, vol. 25(1), pages 147-206, March.
    10. By Mohsin S. Khan & Abdelhak S. Senhadji, 2001. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1-1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sokolov, Yuri, 2010. "Business cycle effects on portfolio credit risk: A simple FX Adjustment for a factor model," MPRA Paper 27222, University Library of Munich, Germany.
    2. Nils Øyvind Mæhle & Haimanot Teferra & Armine Khachatryan, 2013. "Exchange Rate Liberalization in Selected Sub-Saharan African Countries Successes, Failures, and Lessons," IMF Working Papers 13/32, International Monetary Fund.
    3. Holtemöller, Oliver & Mallick, Sushanta, 2013. "Exchange rate regime, real misalignment and currency crises," Economic Modelling, Elsevier, vol. 34(C), pages 5-14.
    4. Boris A. Luna Acevedo, 2011. "La apreciación del tipo de cambio y su efecto en la balanza comercial. Caso boliviano (2006 - 2008)," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 15(2), pages 45-96, December.
    5. nnamdi, Kelechi & ifionu, Ebele, 2013. "Exchange rate volatility and exchange rate uncertainty in Nigeria: a financial econometric analysis (1970- 2012)," MPRA Paper 48316, University Library of Munich, Germany, revised 2013.

    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ausecp:v:41:y:2002:i:4:p:369-381. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery) or (Christopher F. Baum). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0004-900X .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.