Accounting for Real Exchange Rate Changes in East Asia

HKIMR Working Paper No. 06/2001

34 Pages Posted: 13 Mar 2003

Date Written: July 2006


This study measures the proportion of real exchange rate movements that can be accounted for by movements in the relative price of non-traded goods using the framework employed by Engel (1999). Among the twenty-one bilateral Asian-Pacific real exchange rates considered here, that proportion is found to be trivially small for all possible horizons that the data allow - from one month up to 25 years. This pattern appears unaffected by the cross-sectional variation in either income level, or the degree of openness present among these Pacific-Rim economies. The only qualifications occur when considering fixed (or semi-fixed) exchange rate regimes.

Keywords: Real Exchange Rate, MSE, Decomposition

JEL Classification: F3, F4

Suggested Citation

Parsley, David C., Accounting for Real Exchange Rate Changes in East Asia (July 2006). Available at SSRN: or

David C. Parsley (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-322-0649 (Phone)
615-343-7177 (Fax)

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