Last but not least, we look at how productivity growth can affect the equilibrium real exchange rate. What is productivity? We have a vague concept of this in our work place, but it has a precise definition — output per man hour. Rising productivity growth causes increased supply of a good. Supply/demand dynamics require that [...]
Archive of posts tagged business
REER and FEER
In line with the external balance approach, the Real Effective Exchange Rate (REER) is the trade-weighted exchange rate (NEER) adjusted for inflation. As with PPP, the purpose of using REER is to try to gauge an exchange rate’s over- or undervaluation relative to a given norm. As with PPP, using REER is far from an [...]