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Accounting for US Real Exchange Rate Changes (1999)
| Venue: | Journal of Political Economy |
| Citations: | 295 - 34 self |
BibTeX
@ARTICLE{Engel99accountingfor,
author = {Charles Engel},
title = {Accounting for US Real Exchange Rate Changes},
journal = {Journal of Political Economy},
year = {1999},
pages = {507--538}
}
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Abstract
This study measures the proportion of U.S. real exchange rate movements that can be accounted for by movements in the relative prices of nontraded goods. The decomposition is done at all possible horizons that the data allow—from one month up to 30 years. The accounting is performed with five different measures of nontraded-goods prices and real exchange rates, for exchange rates of the United States relative to a number of other high-income countries in each case. The outcome is surprising: relative prices of nontraded goods appear to account for almost none of the movement of U.S. real exchange rates. Special attention is paid to the U.S. real exchange rate with Japan. The possibility of mismeasurement of traded-goods prices is explored. The real exchange rate is a measure of one country’s overall price level relative to another country’s. It is often associated with the price of nontraded goods relative to traded goods. To see why, consider a price index for a country that is a geometric weighted average of traded- and nontraded-goods prices: pt � (1 � α)p T t � αp N t, I thank participants at seminars at the Federal Reserve Bank of Kansas City, the NBER, the University of Washington, and the Castor workshop, as well as the referee at this Journal for useful comments. Mike Hendrickson and Avery Tillett-Ke performed
Keyphrases
nontraded good u real exchange rate change relative price u.s. real exchange rate real exchange rate nontraded-goods price special attention possible horizon different measure avery tillett-ke u.s. real exchange rate movement kansa city castor workshop high-income country overall price level relative geometric weighted average traded-goods price mike hendrickson useful comment exchange rate price index federal reserve bank united state
