There is huge room to maneuver between the extremes of targeting a specific level of the real exchange rate and disowning any interest in the real exchange rate.

Table 5. Latin America and the Caribbean real effective

The real exchange rate is of paramount importance here, as it determines the competitiveness and profitability of modern tradable activities.

Inflation did, indeed, come down but the real exchange rate rapidly became overvalued.

Countries that grow faster tend to experience real exchange rate appreciation, a phenomenon known as the Balassa Samuelson effect.

The same can be said of capital inflows and the upward pressure that they place on the real exchange rate.

The three phenomena that boost nominal GDP increases in real output, a rise in the relative price of exports, and real exchange rate appreciation do not operate independently of one another.

In some of them, the erosion of competitiveness associated with real exchange rate appreciation (the Dutch disease ) is becoming a burden to producers and is choking off economic growth.

Poorly managed revenue, however, can cause appreciation of the real exchange rate and reduce the competitiveness of the non booming part of the economy.

Of course, the actual payment will be made in ordinary currency at the contemporaneous exchange rate, based on the consumer price index, between baskets and the currency.

And in the next video, we're going to apply this concept to see how this freely floating exchange rate can help equalize or should help equalize trade imbalances in an ideal world.

Over time, real exchange rate appreciation will cause a shift in expenditure, making China s rebalancing more apparent.

But expanding demand and allowing real effective exchange rate appreciation in China will not be enough if other countries do not do their part.

After a decade that saw wages grow faster than productivity, unit labor costs (and the real exchange rate based on those costs) appreciated sharply.

A further drop in the real rate of exchange in 1993 decreased the cost of imports and increased that of exports, making it difficult to correct the trade balance.

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Balance 1992 1992 Exchange Balance at

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Then a decade of nominal wage growth that out paced productivity gains led to a rise in unit labor costs, real exchange rate appreciation, and large current account deficits.

Exchange Rate Disorder

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A customer for the drainpipe.

The payroll department wants it.

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This means that the fiscal authorities have a big responsibility to target a structural fiscal surplus that is high enough to generate the space needed for real exchange rate depreciation.

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Official Records of the General Assembly, Fifty ninth session, Supplement No. 20 and corrigendum (A 59 20), para.

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realtime

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