Real exchange rates and nontradables: A relative price approach

Vikas Kakkar, Masao Ogaki

Research output: Contribution to journalArticle

26 Citations (Scopus)


In this paper, we study long-run comovements of real exchange rates and relative prices of nontradables and tradables. This approach is complementary to many existing approaches to investigating real exchange rate movements. In many theoretical models of exchange rate determination, the relative prices of nontradables and tradables are linked to the real exchange rates by identities. However, they do not necessarily move with real exchange rates in reality because of many factors. For example, many tradables contain nontradable components in the form of retailing services, so that Purchasing Power Parity (PPP) may not hold for these tradable goods even in the long run. Hence real exchange rates may not move in the direction predicted by theoretical models when the producers of these tradable goods experience changes in productivity. In this paper, we identify time periods, countries and relative price measures for which comovements between real exchange rates and relative prices of nontradables and tradables are observed.

Original languageEnglish
Pages (from-to)193-215
Number of pages23
JournalJournal of Empirical Finance
Issue number2
Publication statusPublished - 1999 Apr



  • F31
  • F41
  • Nontradables
  • Real exchange rate
  • Tradables

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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