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Exchange Rate Policy in Philippine Development: Analytical Considerations
- Article from:
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Research Paper Series (Philippine Institute for Development Studies)
- Article date:
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January 1, 2003
- Author:
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Copyright informationCopyright Philippine Institute for Development Studies 2003. Provided by ProQuest LLC. (Hide copyright information)
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Nominal and real exchange rates under generalized floating
Analytical discussions in which foreign prices are assumed fixed typically represent the real exchange rate simply as a ratio of the nominal exchange rate to a general price index in the "small country" under study. In empirical work that traces the movement of the real exchange rate over time, foreign prices cannot be assumed constant. With generalized currency floating, changes in the general price level in each trade partner, as well as in the bilateral exchange rates, need to be taken into account.
As will be shown in the following discussion, import protection itself contributes to exchange rate overvaluation, which need to be ...