The article explores how real exchange rates, real output, and interest rate differentials interact. By using cointegration methods, the researchers discovered a connection between real exchange rates and real interest differentials, which is different from previous studies. They also introduced a new way to measure the equilibrium exchange rate based on the permanent component of the real exchange rate. The presence of cointegration helped identify different types of disturbances with minimal restrictions. The study suggests that persistent deviations in real exchange rates can impact the underlying fundamentals, potentially changing the equilibrium exchange rate.