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: Suggested Citation