Economics, Econometrics and Finance
4 years ago

New Price Index Reveals Stronger Mean Reverting Properties in Real Exchange Rates

Economic Notes
The Behaviour of the Real Exchange Rate: Evidence from an Alternative Price Index
Lucio Sarno, Ibrahim Chowdhury

Paper Summary

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The study looked at how the real exchange rate behaves using a different price index. They found that the real exchange rate for six major economies shows stronger mean-reverting properties when using a price index that focuses more on tradable goods. This means that the real exchange rate tends to move back towards its long-term average more quickly than when using the consumer price index.