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Real Exchange Rates in the Developing Countries: Concepts and Measure- ment

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  • Sebastian Edwards

Abstract

This paper deals with three important issues related to real exchange rates. First, it discusses the analytical concept of real exchange rate (RER) placing particular emphasis on providing an operational definition for the equilibrium real exchange rate. Of course, once this concept is defined we can begin to discuss in a meaningful way what we mean by real exchange rate misalignment, or deviations of the actual RER from its equilibrium value. Second, this paper deals with problems associated with measuring real exchange rates. Several proposals are analyzed and the more serious problems encountered when attempting to compute RER's in the developing countries are discussed. And third, I analyze the actual behavior of RER's in a number of developing countries. Here, issues related to the behavior of alternative indexes and to the statistical properties of real exchange rates are emphasized. Additionally, I study the real consequences of increased real exchange rate volatility.

Suggested Citation

  • Sebastian Edwards, 1989. "Real Exchange Rates in the Developing Countries: Concepts and Measure- ment," NBER Working Papers 2950, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2950
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    1. Kemal Dervis & Peter A. Petri, 1987. "The Macroeconomics of Successful Development: What Are The Lessons?," NBER Chapters,in: NBER Macroeconomics Annual 1987, Volume 2, pages 211-262 National Bureau of Economic Research, Inc.
    2. Vittorio Corbo & Jaime de Melo & James Tybout, 2015. "What Went Wrong with the Recent Reforms in the Southern Cone," World Scientific Book Chapters,in: Developing Countries in the World Economy, chapter 2, pages 21-54 World Scientific Publishing Co. Pte. Ltd..
    3. Dornbusch, Rudiger, 1974. "Tariffs and nontraded goods," Journal of International Economics, Elsevier, vol. 4(2), pages 177-185, May.
    4. Artus, Jacques R., 1978. "Methods of assessing the long-run equilibrium value of an exchange rate," Journal of International Economics, Elsevier, vol. 8(2), pages 277-299, May.
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