Real Exchange Rates in the Developing Countries: Concepts and Measure- ment

Sebastian Edwards

NBER Working Paper No. 2950
Issued in April 1989
NBER Program(s):International Trade and Investment, International Finance and Macroeconomics

This paper deals with three important issues related to real exchange rates. First, it discusses the analytical concept of real exchange rate (RER) placing particular emphasis on providing an operational definition for the equilibrium real exchange rate. Of course, once this concept is defined we can begin to discuss in a meaningful way what we mean by real exchange rate misalignment, or deviations of the actual RER from its equilibrium value. Second, this paper deals with problems associated with measuring real exchange rates. Several proposals are analyzed and the more serious problems encountered when attempting to compute RER's in the developing countries are discussed. And third, I analyze the actual behavior of RER's in a number of developing countries. Here, issues related to the behavior of alternative indexes and to the statistical properties of real exchange rates are emphasized. Additionally, I study the real consequences of increased real exchange rate volatility.

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Document Object Identifier (DOI): 10.3386/w2950


  • and Welfare: The Role of Capital Controls and Labor Market Distortions, DEP."Tariffs, Capital Controls, and Equilibrium Real Exchange Rates", CANJE, Vol. 22, no. 1 (1989): 79-92.
  • With Jonathan D. Ostry, "Anticipated Protectionist Policies, Real Exchange Rates, and the Current Account: The Case of Rigid Wages", JIMF, Vol. 9,no. 2 (1990). With Jonathan D. Ostry, "Terms of Trade Disturbances, Real Exchange Rates,

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