What is it about?
This study investigates how the prices of goods traded between countries affect real exchange rates, particularly in East and South Asian economies. It challenges a popular economic theory—the Balassa-Samuelson hypothesis—which suggests that differences in productivity between the traded and non-traded sectors drive changes in real exchange rates. The authors test this theory using new econometric methods, showing that the price of traded goods plays a significant role in exchange rate fluctuations, contrary to previous assumptions.
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Why is it important?
The findings are crucial for policymakers and economists because they suggest that controlling inflation and exchange rates in developing Asian countries requires paying closer attention to the prices of internationally traded goods. The study shows that traditional models may not fully capture the complexities of exchange rate movements in these regions, calling for a reevaluation of existing economic strategies.
Perspectives
From my perspective, this paper sheds new light on the role of traded goods in influencing real exchange rates. By questioning long-held assumptions about purchasing power parity, it opens up new avenues for understanding economic transitions in fast-growing Asian markets. For researchers, this offers a fresh perspective on the Balassa-Samuelson hypothesis, encouraging further studies on trade and macroeconomic stability.
Maryam Ishaq
University of Lahore
Read the Original
This page is a summary of: Another Prospective on Real Exchange Rate and the Traded Goods Prices: Revisiting Balassa–Samuelson Hypothesis, Sustainability, June 2022, MDPI AG,
DOI: 10.3390/su14137529.
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