Munich Personal RePEc Archive

Theories of real exchange rate determination: A brief survey

Rapetti, Martin (2012): Theories of real exchange rate determination: A brief survey.

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Abstract

This paper reviews "most popular" theories of real exchange rate (RER) determination. It first presents the basic concepts and definitions. It then goes over the theories. It begins with partial equilibrium models: the purchasing power parity and the Harrod-Balassa-Samuelson. It then follows with models dealing with economies in financial autarky: the tradable and non-tradable model and a standard Keynesian model. It finally surveys models of economies integrated to the international capital markets: the Mundell-Fleming model, the portfolio balance approach, the monetary approach to balance of payment and the intertemporal approach to the current account. The paper closes with some observations and remarks.

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