Real exchange rates and relative prices : An empirical investigation
This paper uncovers a striking empirical regularity: the consumer price of a good relative to a different good within a country tends to be much less variable than the price of that good relative to a similar good in another country. This fact seems to hold for all goods except very simple, homogeneous products. Models of real exchange rates are likely to have predictions regarding this relation, so this fact may provide a useful gauge for discriminating among models.
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References listed on IDEAS
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- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
- Isard, Peter, 1977. "How Far Can We Push the "Law of One Price"?," American Economic Review, American Economic Association, vol. 67(5), pages 942-48, December.
- Marston, Richard C., 1990. "Systematic movements in real exchange rates in the G-5 : Evidence on the integration of internal and external markets," Journal of Banking & Finance, Elsevier, vol. 14(5), pages 1023-1044, November.
- Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
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