Since Engel-type real exchange rate
variance decomposition exercises may underestimate the importance of the relative price of non-traded goods, in this paper I use a different approach.
The purpose of this article is, therefore, to determine the effect of the real exchange rate
on Colombia's total industrial employment and on 59 of the country's industrial sectors for the period 2000-2010.
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.
Before examining the linkage between real exchange rate
, portfolio flow and industrial production, it is first necessary to distinguish between short-term and long-term uncertainty using the local level model.
Inflation, growth, and the real exchange rate
under inflation targeting
The real exchange rate
trend has been computed using bilateral real exchange rate
with US dollar.
The Balassa-Samuelson model has been widely used in analyzing real exchange rate
For more on the macroeconomic implications of the volatility and cyclicality of the terms of trade and real exchange rate
see Grimes (2006) and Chetwin, Ng, and Steenkamp (2013), respectively.
Nonetheless, by the end of April the real exchange rate
index reached 108 due to two evolutions.
Thus, monetary policy cannot be used to initiate changes in the real exchange rate
designed to achieve some domestic goal if this involves changing the nominal exchange rate.
In line with the theoretical models involving transaction costs, one can characterize real exchange rate
movements based on a Band-Threshold Autoregressive (Band-TAR) and exponential smooth-transition autoregressive (ESTAR) models.
The authors also find that the rate of international reserve accumulation tends to reduce the appreciation of the real exchange rate
in episodes of commodity price booms and busts.