Following previous studies from the literature, in this article I restrict attention to the real exchange rate
as an additional variable that central banks in open economies may respond to when conducting monetary policy.
Further research is needed on the relationship between the capital inflow and appreciation of the real exchange rate
, on the one hand, and the growth of output, consumption and investment, on the other hand.
Therefore, even if the real exchange rate
converges to its balanced level, the price ratio of Chinese and U.S.
Previous studies in the literature have either used the variance and/or standard deviation of the real exchange rate
to measure its volatility or resort to employing GARCH family models to achieve the same purpose.
As for studies that empirically argued the interrelation between macroeconomic variables and their imbalances in Egypt, Ramly, and Halim (2008) studied the interrelation between real exchange rate
and output in Egypt.
Glushenkova and Zachariadis (2016) support that the adoption of the euro improves goods market integration, which can also be interpreted as increasing real exchange rate
Measuring and analyzing the effects of short-term volatility in real exchange rates
. The Review of Economics and Statistics, 311-315.
(2015) The impact of the Renminbi real exchange rate
on ASEAN disaggregated exports to China.
The Central Bank increases policy rate in response to a rise in the foreign interest rate if [delta] > 0 and is assumed to cut down the policy rate in response to an appreciation of real exchange rate
according to the Uncovered Interest rate Parity (UIP) condition.
In addition, Charfi (2013) shows that financial liberalization of capital flows in Tunisia leads to real exchange rate