Bivariate Assessments of Real Exchange Rates Using PPP Data

Author/Editor:

Juan Zalduendo

Publication Date:

June 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper focuses on assessments of real exchange rates using PPP data and examines their limitations when these are based exclusively on bivariate estimations. It begins by presenting an analytical framework of the real exchange rate that shows that these estimations make many restrictive assumptions. In turn, the empirical evidence presented shows that the estimates are not robust to changes in sample, such as those that arise from differences in incomes per capita. The conclusion is that the bivariate assessment of real exchange rates do not control for the heterogeneity that exists across countries, thus limiting their usefulness. This critique of bivariate estimations does not apply however to multivariate approaches such as utilized by CGER

Series:

Working Paper No. 2008/153

Subject:

Frequency:

Annually

English

Publication Date:

June 1, 2008

ISBN/ISSN:

9781451870114/1018-5941

Stock No:

WPIEA2008153

Pages:

26

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