Economic Growth and Real Exchange Rates

The tendency for real exchange rates to be below Purchasing Power Parity in developing countries relative to industrialised countries suggests that rapid development should lead to real appreciation. Yet some development shocks, such as to productivity and factor endowments, cause real depreciations. This project will research links between economic growth, sectoral productivity, factor accumulation and the path of real exchange rates, combining theoretical models and empirical analysis. A numerical model of the global economy will then be used to project real exchange rates, particularly between Australia, its principal trading partners and its Asian neighbours.