Archive | Real Exchange Rate

The following points highlight the top three effects of economic policies on the RER. The Effects are: 1. Effect of domestic fiscal policy 2. Effect of fiscal policy abroad 3. Increase in investment demand. Effect # 1. Effect of Domestic Fiscal Policy: Suppose that the British government now reduces national saving either by increasing G or cutting T. As a [...]

Let us make an in-depth study of the Determinants of the Real Exchange Rate. 1. The BOT (NX) is equal to net capital outflow, which, in turn, equals S-I. 2. Saving (S) depends on C, G and T. 3. Investment (I) depends on both the domes­tic and the world rate of interest. In a world of perfect capital mobility, there [...]