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The literature mostly investigates the impact of trade and financial integration on business cycle synchronization. The author differs by focusing on the real effective exchange rate as the target variable in the North American Free Trade Agreement (NAFTA) region. In particular, the author investigates synchronization by analyzing the short- and long-run dynamics of the real effective exchange rates of Canada, Mexico and the US for 2008–2019.

The author first employs stationarity and cointegration tests to specify and estimate the long-run equilibrium relation between the real effective exchange rates of Canada, Mexico and the US. The author then specifies and estimates an error-correction model for each real effective exchange rate in order to investigate whether the adjustment in eliminating disequilibrium is asymmetric.

The results indicate that the real effective exchange rates of Canada, Mexico and the US are cointegrated with only one long-run equilibrium relation. Canada's real effective exchange rate responds symmetrically to eliminate both negative and positive disequilibrium with a similar speed of adjustment. However, the response of Mexico's real effective exchange rate is asymmetric, as it responds to eliminate only positive disequilibrium. The US real effective exchange rate does not respond to disequilibrium, perhaps because it has a large economy with much stronger competition beyond the NAFTA region than both Canada and Mexico.

This is the first study that investigates real effective exchange rate synchronization in the NAFTA region.

The assignment of targets to instruments in developing countries cannot satisfactorily follow any simple universal rule. Which approach is appropriate is influenced by whether the economy is dominated by primary exports, by the importance of the domestic bond market and bank credit, by the extent of existing restriction in foreign exchange and financial markets, by the presence or absence of persistent high inflation, and by the existence or non‐existence of an active international market in the country's currency. Eighteen observations and maxims on stabilisation policy are tentatively drawn (pp. 64–8) from the material reviewed, and the maxims are partly summarised (pp. 69–71) in a schematic assignment, with variations, of targets to instruments.

The purpose of this paper is to examine the impact of real exchange rate misalignment on economy and economic sectors, namely construction, manufacturing and mining and quarrying in Malaysia.

The equilibrium real exchange rate and economic models are estimated using the autoregressive distributed lag approach.

An increase in productivity differential or reserve differential will lead to an appreciation of real exchange rate in the long run. An increase in positive (negative) real exchange rate misalignment will lead to an increase (decrease) in economy. An increase in long-run real exchange rate misalignment will lead to a decrease in economy. Real exchange rate misalignment or long-run real exchange rate misalignment can influence the manufacturing sector in Malaysia. More specifically, undervaluation will promote whereas overvaluation will hurt the manufacturing sector.

Real exchange rate misalignment can be a policy to influence economy but may not be the best choice.

The paper aims to examine the effects of exchange rate fluctuations on real output, the price level, and the real value of components of aggregate demand in Egypt and Turkey.

Building on a theoretical model that decomposes movements in the exchange rate into anticipated and unanticipated components, the empirical investigation traces the effects through demand and supply channels.

In Turkey, anticipated exchange rate appreciation has significant adverse effects, contracting the growth of real output and the demand for investment and exports, while raising price inflation. Random fluctuations in Turkey have asymmetric effects that highlight the importance of unanticipated depreciation in shrinking output growth and the growth of private consumption and investment, despite an increase in export growth. In Egypt, anticipated exchange rate appreciation decreases export growth. Given asymmetry, the net effect of unanticipated exchange rate fluctuations, in Egypt, decreases real output and consumption growth and increases export growth, on average, over time.

In light of the country‐specific evidence, future research should extend the investigation using panel estimation, incorporating various demand and supply shocks along with exchange rate fluctuations, to establish the relative importance of various shocks on macroeconomic performance across MENA countries.

While adhering to a flexible exchange rate policy to boost competitiveness, managing fundamentals to reduce excessive volatility impinging on the economic system over time should top the policy agenda.

Excessive volatility in the real effective exchange rate could be detrimental to real growth, over time, as the evidence for Turkey and Egypt illustrates.

The observed real exchange rate, measured as an effective index of real labour costs, may serve as a base for the evaluation of the Portuguese economy's competitiveness. The purpose of this paper is to evaluate the positioning of the real exchange rate, throughout time, against a benchmark that guarantees external macroeconomic equilibrium (balanced fundamental account).

This paper uses the effective real exchange rate as an indicator of Portugal's competitive position in relation to its major trading partners (fundamental equilibrium exchange rate approach using the unit labour costs).

The authors found evidence that the real exchange rate has been persistently overvalued since the early 1990s. The evolution of this situation, which is harmful for the national economy, does not evidence the return to a path that may ensure external equilibrium for Portugal. The results show evidence of significant overvaluation of the Portuguese real exchange rate when compared to its estimated equilibrium level. In order to achieve a balanced fundamental account and considering a margin of error of 5 per cent, the real exchange rate needs to depreciate between 27.69 and 30.61 per cent.

The relevance of the real effective exchange rate as a macroeconomic indicator arises from its role as a measure of national competitiveness. Computed as a measure of the difference of international prices, adjusted to the same unit of measurement, it represents the relative price of goods between countries, determining where this same price may be higher or lower. According to Krugman and Obstfeld, the manipulation of the real effective exchange rate allows one country to adjust its level of competitiveness against its trading partners.

Using data for a sample of advanced and developing countries, this paper aims to study the responses of monetary growth and the growth of government spending to external spillovers, namely, the growth of exports and imports, movement in the real effective exchange rate and the change in the oil price. The objective is to study movements in domestic policy variables in open economies that are vulnerable to trade and commodity price shocks.

The analysis evaluates correlations between the responses of the policy variables to external spillovers. Further, the analysis studies the effects of indicators of economic performance on domestic policy responses to various shifts across countries.

Higher variability of real and nominal growth increases the fiscal policy response to external spillovers with an aim to stem further variability. Monetary policies appear to be more responsive to trend price inflation with an aim to stem further inflationary pressures. Fiscal policy’s reaction to trend price inflation aims at striking a balance between countering potential inflationary pressures, as well as recessionary conditions attributed to the various spillovers.

Overall, the evidence points to the importance of trade and commodity price shifts to the design of domestic policies. Further indicators of economic performance differentiate the degree of policy responses to trade and commodity price developments with a goal to stem inflationary pressures and reduce aggregate uncertainty.

The purpose of this study is to examine the temporal relationships between inflation and exchange rate changes and their implications for the trade balance in Uganda, which saw persistent trade deficits, rising inflation and disinflation episodes, as well as significant exchange-rate realignments and other liberalization measures over the sample period considered.

The short-run dynamics of the variables in question and the pattern of their long-run relationships are examined applying the bounds testing approach to cointegration on quarterly data.

The estimates suggest that, in the long run, a real depreciation leads to an increase in inflation; and that both real depreciation and inflation exert no significant effect on the trade balance. The estimated short-run dynamics suggest a causal relationship between the trade balance and the real exchange rate and between the real exchange rate and inflation, which is also found responsive to developments in the foreign sector. Taken together, the short-run and long-run multipliers seem to provide a weak support for the J-curve effect, while no evidence is found for the presence of the S-curve effect.

The study sheds light on the relationship among real exchange rate, inflation and the trade balance in the context of a small developing economy; it highlights that an improvement in the trade balance requires more than an appropriate exchange rate policy and underscores the importance of other policies in strengthening the external sector of the economy.

The relationship between real exchange rate and services export diversification is at the heart of this study.

The analysis is performed using a sample of 113 countries over the period 1985–2014, and the 2-step system Generalized Method of Moments (GMM) approach. The analysis uses both the Theil index and Herfindahl–Hirschman index of services export concentration.

The analysis shows that over the full sample, the real effective exchange rate appreciation induces a greater services export diversification. This outcome applies to high-income countries and developing countries. However, the positive effect of the appreciation of the real exchange rate on services export concentration is lower in least developed countries than in other countries. Finally, the effect of the appreciation of the real exchange rate on services export concentration in tax haven countries depends on the indicator of services export concentration, as this is positive for the Theil index and negative for the Herfindahl–Hirschman index of services export concentration.

These findings highlight the strong influence of real exchange policies on countries' path of services export diversification.

To the best of the authors' knowledge, this topic is being addressed in the empirical literature for the first time.

The purpose of this paper is to investigate the empirical relationships between changes in OECD output, commodity prices, the real exchange rate, real money supply, unit labour costs and manufacturing in South Africa. In particular, to test a version of the Dutch disease argument that increases in the prices of South Africa’s main commodity exports have had a negative effect on domestic manufacturing against the alternative hypothesis that there is a positive relationship between such changes in commodity prices and domestic manufacturing output.

Construction of a model including real manufacturing output in South Africa as the dependent variable and the following independent variables: OECD output, an international real metals price index, a real effective exchange rate index, real M3 money supply and manufacturing unit labour costs. The time series sample data comprise 124 quarterly observations for the period 1980-2010. The model equation was tested and estimated using a Johansen cointegration approach.

The main findings are: OECD output is the single most important determinant of domestic manufacturing output; while the real exchange rate has the predicted negative sign, rising commodity prices are associated with increases rather than decreases in domestic manufacturing and; large increases in unit labour costs since the early 1980s have dragged down manufacturing over the sample period.

The finding of a positive relationship between commodity prices and domestic manufacturing means that the Dutch disease argument must be revised when applied to South Africa. While rising commodity prices may lead to a negative exchange rate effect on manufacturing competitiveness, this is more than offset by the positive growth effects associated with upswings in the commodity price cycle.

The purpose of this paper is to assess the level of the real effective exchange rate in Australia and New Zealand.

The paper describes three empirical models commonly used to conduct exchange rate assessments and applies them to data for Australia and New Zealand.

The baseline results using data and medium‐term projections, available as of October 2008, suggest that the Australian and New Zealand dollar were broadly in line with fundamentals, but with a wide variation across models. A battery of sensitivity tests illustrates that altering the underlying assumptions can yield substantially different assessments. The results are particularly sensitive to the choice of assessment horizon, the set of economies included in the sample, medium‐term forecasts, and the exchange rate reference period.

The paper provides an assessment of the exchange rates in Australia and New Zealand.