Bivariate Assessments of Real Exchange Rates Using PPP Data
IMF Working Papers, June 1, 2008
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Bibliographic details
- Authors: Juan Zalduendo
- Published: June 1, 2008
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451870114.001
Analytical framework and methods
- Focus: assessments of real exchange rates using PPP data.
- Primary methodological critique: bivariate estimations make many restrictive assumptions (as shown by the analytical framework of the real exchange rate presented in the paper).
- Contrast: the critique does not apply to multivariate approaches such as utilized by CGER.
Empirical evidence and robustness
- Empirical finding: estimates from bivariate assessments are not robust to changes in sample.
- Specific sample sensitivity noted: differences in incomes per capita produce changes in estimates, showing lack of robustness.
- Implication: bivariate assessments fail to control for heterogeneity across countries.
Conclusions and implications for practice
- Main conclusion: the bivariate assessment of real exchange rates does not control for the heterogeneity that exists across countries, thus limiting their usefulness.
- Recommendation implicit in critique: prefer multivariate approaches (for example, as utilized by CGER) when assessing real exchange rates using PPP data.
Subjects and keywords
- Subjects: Exchange rates, Income, Public investment and public-private partnerships (PPP), Purchasing power parity, Real exchange rates
- Keywords: natural logarithm, rate of exchange, time series, total factor productivity, WP