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A General Equilibrium Model with Real Exchange Rates

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  • Leonardo Tariffi

    (University of Barcelona)

Abstract

I first write a partial equilibrium model “á la Rogoff†where there are relative prices of non-tradable goods in terms of prices of tradables goods. I find that the behaviour of the real exchange rate shows structural breaks in the short term. Secondly, I explain that any change in the real exchange rate is transitory in the long run. I obtain a general equilibrium model after I add a utility function to the partial-equilibrium model. In the general equilibrium model, an increase occurring in consumption of tradables is going to keep the RER constant over the time.

Suggested Citation

  • Leonardo Tariffi, 2024. "A General Equilibrium Model with Real Exchange Rates," UB School of Economics Working Papers 2024/476, University of Barcelona School of Economics.
    • Handle: RePEc:ewp:wpaper:476web
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    File URL: https://hdl.handle.net/2445/217381
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    2. Robert A. Mundell, 1960. "The Monetary Dynamics of International Adjustment under Fixed and Flexible Exchange Rates," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 74(2), pages 227-257.
    3. Balázs Égert & László Halpern & Ronald MacDonald, 2006. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 257-324, April.
    4. Bordo, Michael D. & Choudhri, Ehsan U. & Fazio, Giorgio & MacDonald, Ronald, 2017. "The real exchange rate in the long run: Balassa-Samuelson effects reconsidered," Journal of International Money and Finance, Elsevier, vol. 75(C), pages 69-92.
    5. Jordi Galí & Tommaso Monacelli, 2016. "Understanding the Gains from Wage Flexibility: The Exchange Rate Connection," American Economic Review, American Economic Association, vol. 106(12), pages 3829-3868, December.
    6. Blanco, Andrés & Cravino, Javier, 2020. "Price rigidities and the relative PPP," Journal of Monetary Economics, Elsevier, vol. 116(C), pages 104-116.
    7. Carlos Carvalho & Fernanda Nechio, 2011. "Aggregation and the PPP Puzzle in a Sticky-Price Model," American Economic Review, American Economic Association, vol. 101(6), pages 2391-2424, October.
    8. Edwards, Sebastian, 1988. "Real and monetary determinants of real exchange rate behavior: Theory and evidence from developing countries," Journal of Development Economics, Elsevier, vol. 29(3), pages 311-341, November.
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    More about this item

    Keywords

    Exchange rate; Non-tradable goods; General equilibrium model; Dynamics;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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