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Real Exchange Rates in a Model of Structural Change: Applications to the Real Yen-Dollar and Chinese RMB-Dollar Exchange Rates

  • Robert Dekle

    (University of Southern California (Email:

We tackle the important issue of what the appropriate trends in the real Yen-Dollar andRMB-Dollar are over time. Over the long-run, the real yen has been appreciating against the U.S. dollar; while the real RMB-dollar rate has been depreciating (until 1999). In this paper, we build a macroeconomic-trade model of Japan-U.S. trade on theone hand, and China-U.S. trade on the other. Our model is essentially a general equilibrium extension of the Balassa-Samuelson effect. We show that these long-run trends in the real yen-dollar and RMB-dollar rates in the data can be justified by our model.

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Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 13-E-02.

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Date of creation: May 2013
Date of revision:
Handle: RePEc:ime:imedps:13-e-02
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  1. Robert Dekle & Jonathan Eaton & Samuel Kortum, 2008. "Global Rebalancing with Gravity: Measuring the Burden of Adjustment," IMF Staff Papers, Palgrave Macmillan, vol. 55(3), pages 511-540, July.
  2. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2007. "The Fog Encircling The Renminbi Debate," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 52(03), pages 403-418.
  3. Kiminori Matsuyama, 2009. "Structural Change in an Interdependent World: A Global View of Manufacturing Decline," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 478-486, 04-05.
  4. Asea, Patrick K & Mendoza, Enrique G, 1994. "The Balassa-Samuelson Model: A General-Equilibrium Appraisal," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 244-67, October.
  5. Jose De Gregorio & Alberto Giovannini, 1993. "International Evidence on Tradables and Nontradable Inflation," NBER Working Papers 4438, National Bureau of Economic Research, Inc.
  6. Dekle, Robert & Fukao, Kyoji, 2009. "The Japan-U.S. Exchange Rate, Productivity, and the Competitiveness of Japanese Industries," CEI Working Paper Series 2008-25, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  7. Ken Froot & Kenneth Rogoff, . "Perspectives on PPP and Long-Run Real Exchange Rates," Working Paper 32027, Harvard University OpenScholar.
  8. Murat Ungor, 2011. "De-industrialization of the Riches and the Rise of China," 2011 Meeting Papers 740, Society for Economic Dynamics.
  9. Kei-Mu Yi & Jing Zhang, 2011. "Structural change in an open economy," Staff Report 456, Federal Reserve Bank of Minneapolis.
  10. Martin Bodenstein, 2008. "Trade elasticity of substitution and equilibrium dynamics," International Finance Discussion Papers 934, Board of Governors of the Federal Reserve System (U.S.).
  11. University of Minnesota & Radoslaw Stefanski, 2009. "Structural Transformation and the Oil Price," 2009 Meeting Papers 1050, Society for Economic Dynamics.
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