Accounting for real exchange rate changes in East Asia

• Published in: Journal of international money and finance Vol. 26; no. 8; pp. 1355 - 1377
• Main Author: Parsley, David C.
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier Ltd 01-12-2007; Elsevier; Elsevier Science Ltd
• Series: Journal of International Money and Finance
• Subjects: Deviations from the law of one price; Economic fluctuations; Exchange rates; Foreign exchange rates; International finance; International trade; PPP; Price formation; Prices; Purchasing power parity; Studies; Traded and non-traded goods; East Asia; PPP; Deviations from the law of one price; F3; Traded and non-traded goods; F4
• ISSN: 0261-5606; 1873-0639
• DOI: 10.1016/j.jimonfin.2007.06.008

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. Accounting for U.S. real exchange rate changes. Journal of Political Economy 107, 507–538]. Among the 21 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.