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Bivariate Assessments of Real Exchange Rates Using PPP Data

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  • Juan Zalduendo

Abstract

This paper focuses on assessments of real exchange rates using PPP data and examines their limitations when these are based exclusively on bivariate estimations. It begins by presenting an analytical framework of the real exchange rate that shows that these estimations make many restrictive assumptions. In turn, the empirical evidence presented shows that the estimates are not robust to changes in sample, such as those that arise from differences in incomes per capita. The conclusion is that the bivariate assessment of real exchange rates do not control for the heterogeneity that exists across countries, thus limiting their usefulness. This critique of bivariate estimations does not apply however to multivariate approaches such as utilized by CGER

Suggested Citation

  • Juan Zalduendo, 2008. "Bivariate Assessments of Real Exchange Rates Using PPP Data," IMF Working Papers 08/153, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/153
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    Keywords

    Exchange rates; Prices; Purchasing power parity; Real exchange rate; exchange rate; real exchange rates;

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