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Real Exchange Rate and External Balance [electronic resource]: How Important Are Price Deflators?. / JaeBin Ahn.

Author/Creator:
Ahn, JaeBin.
Publication:
Washington, D.C. : International Monetary Fund, 2017.
Format/Description:
Government document
Book
1 online resource (49 p.)
Series:
IMF eLibrary
IMF Working Papers
IMF Working Papers
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Summary:
This paper contrasts real exchange rate (RER) measures based on different deflators (CPI, GDP deflator, and ULC) and discusses potential implications for the link-or lack thereof-between RER and external balance. We begin by documenting patterns in the evolution of different measures of RERs, and confirm that the choice of deflator plays a significant role in RER movements. A subsequent empirical investigation based on 35 developed and emerging market economies over 1995 to 2014 yields comprehensive and robust evidence that only the RER deflated by ULC exhibits contemporaneous patterns consistent with the expenditure-switching mechanism. We rationalize the empirical findings by introducing a simple model featuring nominal rigidity and trade in intermediate goods as the one in Obstfeld (2001) and Devereux and Engel (2007), which is shown to generate qualitatively identical patterns to empirical findings.
Notes:
Part of the IMF eLibrary collection.
Description based on print version record.
Contributor:
Ahn, JaeBin.
Other format:
Print Version: Ahn, JaeBin Real Exchange Rate and External Balance: How Important Are Price Deflators?
ISBN:
1475590504
9781475590500
ISSN:
1018-5941
Publisher Number:
10.5089/9781475590500.001 doi
Access Restriction:
Restricted for use by site license.