Accounting for U.S. Real Exchange Rate Changes

Posted: 10 Jun 1999

See all articles by Charles M. Engel

Charles M. Engel

University of Wisconsin - Madison - Department of Economics; National Bureau of Economic Research (NBER); University of Washington - Department of Economics

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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.

JEL Classification: F31

Suggested Citation

Engel, Charles M., Accounting for U.S. Real Exchange Rate Changes. Journal of Political Economy, Vol. 107, No. 3, June 1999. Available at SSRN: https://ssrn.com/abstract=161225

Charles M. Engel (Contact Author)

University of Wisconsin - Madison - Department of Economics ( email )

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University of Washington - Department of Economics ( email )

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