[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-detail-184258-en":3,"doc-seo-184258-105":31,"detail-sidebar-cat-0-en-105":92},{"code":4,"msg":5,"data":6},0,"success",{"doc_id":7,"user_id":8,"nickname":9,"user_avatar":10,"doc_module":4,"category_id":11,"category_name":12,"doc_title":13,"doc_description":14,"doc_content":15,"file_id":16,"file_url":17,"file_type":18,"file_size":19,"view_count":20,"is_deleted":4,"is_public":21,"is_downloadable":21,"audit_status":21,"page_count":22,"language":23,"language_code":24,"site_id":25,"html_lang":24,"table_of_contents":26,"faqs":27,"seo_title":28,"seo_description":14,"update_tm":29,"read_time":30},184258,2336464648746,"Skyler","https://ap-avatar.wpscdn.com/davatar_276721f389ce27ea32af1340a28f341c",8,"Research & Report","External Shocks - Purchasing Power Parity and the Equilibrium Real Exchange Rate - Working Paper 611","Two approaches determine the equilibrium real exchange rate after external shocks: purchasing power parity (PPP) calculations and the Salter-Swan, tradables-nontradables model. Both methods face theoretical and empirical shortcomings and produce tensions. The paper resolves these issues by extending the Salter-Swan framework with imperfect substitutes for imports and exports. It yields a natural real exchange rate consistent with both PPP and an extended Salter-Swan model, captures terms-of-trade shocks and foreign capital inflows, and enables estimation with minimal additional information, aligning results with multisector CGE models.","378.794G43455WP-611  \nwonzng PapersPURCHASING POWER PARITY,AND THEEQUILIBRIUM REAL EXCHANGE RATEby  \nWORKING PAPER NO.611  \nEXTERNAL SHOCKS,  \nShantayanan DevarajanJohn F.Kennedy School of GovernmentHoend JInivsmitWAITE LIBRARY  \nDEPT.OF AG &APPLIED ECONOMICS1994 BUFORD AVE.-232 COBUNIVERSITY OF MINNESOTAST.PAUL,MN 55108 U.S.A.  \n\n|  | DEPARTMENT OF AGRICULTURAL AND RESOURCE ECONOMICS  \u003Cbr>DIVISION OF AGRICULTURE AND NATURAL RESOURCES  \u003Cbr>UNIVERSITY OF CALIFORNIA AT BERKELEY   |\n| --- | --- |\n|  | WORKING PAPER NO.611  \u003Cbr>EXTERNAL SHOCKS.  \u003Cbr>PURCHASING POWER PARITY,AND THE  \u003Cbr>EQUILIBRIUM REAL EXCHANGE RATE  \u003Cbr>by  \u003Cbr>Shantayanan Devarajan  \u003Cbr>John F.Kennedy School of Government  \u003Cbr>Harvard University  \u003Cbr>Jeffrey D.Lewis  \u003Cbr>Harvard Institute for International Development  \u003Cbr>Harvard University  \u003Cbr>Sherman Robinson  \u003Cbr>Department of Agricultural and Resource Economics  \u003Cbr>University of California at Berkeley   |\n|  | California Agricultural Experiment Station  \u003Cbr>Giannini Foundation of Agricultural Economics  \u003Cbr>May,1991   |\n\n378.794《3455-61  \nExternal Shocks,  \nPurchasing Power Parity,and theEquilibrium Real Exchange Rate  \nShantayanan DevarajanJohn F.Kennedy School of GovernmentHarvard University  \nJeffrey D.Lewis  \nHarvard Institute for International DevelopmentHarvard University  \nSherman Robinson  \nDepartment of Agricultural and Resource EconomicsUniversity of California at Berkeley  \nMay 1991  \nWAITE MEMORIAL BOOK COLLECTIONDEPT.OF AG.AND APPLIED ECONOMICS1994 BUFORD AVE.-232 COBUNIVERSITY OF MINNESOTAST.PAUL,MN 55108 U.S.A.  \nTable of Contents  \nI INTRODUCTON…………………………………………………………………………1  \nII. A SINGLE-COUNTRY, TWO-ACTIVITY, THREE-COMMODITY MODEL ……………4  \nIII. THE ANALYTICS OF THE EQUILIBRIUM REAL EXCHANGE RATE …………………7  \nIV. ALTERNATIVE APPROACHES……………………………………………………………………………………………14  \nV.ILLUSTRATIVE EMPIRICAL EXAMPLES …………………………………………………………………………18  \nCameroon …………………………………………………………………………………………………………………………………………………………19  \nIndonesia …………………………………………………………………………………………………………………………………………………………22  \nVI. CONCLUSION ………………………………………………………………………………………………………………………………28  \nREFERENCES ………………………………………………………………………………………………………………………………30  \n# Abstract\n\nTwo approaches are commonly used to determine the equilibrium real exchange rate  \nin a country after external shocks: purchasing power parity(PPP)calculations and the Salter-  \nSwan, tradables-nontradables model. There are theoretical and empirical problems with both  \napproaches, and tensions between them. In this paper, we resolve these theoretical and  \nempirical difficulties. We present a model which is a generalization of the Salter-Swan model  \nthat incorporates imperfect substitutes for both imports and exports. Within the framework  \nof this model, there is a natural definition of the real exchange rate that is consistent both  \nwith the PPP approach and with the Salter-Swan model(suitably extended). Our model,  \nhowever, is capable of capturing a richer set of phenomena, including terms-of-trade shocks  \nand changes in foreign capital inflows,and also provides a practical way to estimate changes  \nin the equilibrium real exchange rate,requiring little more information than that required  \nto do PPP calculations. We also show that the results from our model are consistent with  \nresults from multisector computable general equilibrium(CGE)models,which generalize the  \ntrade specification of the small model.  \n# I.INTRODUCTION·\n\nFaced with sharp increases in real interest rates,cutbacks in foreign lending,anddeteriorating terms of trade-all of which lower the sustainable level of a country's currentaccount balance—deveioping countries since the mid-1970s have been forced to reduce theirtrade deficits or,in some cases,to run surpluses.They have adopted“structural adjustment”programs,often with the assistance of the IMF or World Bank,aimed at facilitating thetransition to lower current account deficits.A common ingredient in all these programs isa real devaluation of","cbCaigOzhipBGKXo","https://ap.wps.com/l/cbCaigOzhipBGKXo","pdf",4704667,2,1,35,"English","en",105,"# Introduction\n# A Single-Country, Two-Activity, Three-Commodity Model\n# The Analytics of the Equilibrium Real Exchange Rate\n# Alternative Approaches\n# Illustrative Empirical Examples\n## Cameroon\n## Indonesia\n# Conclusion\n# References","[{\"question\":\"Which two approaches are commonly used to determine the equilibrium real exchange rate after external shocks?\",\"answer\":\"They are purchasing power parity (PPP) calculations and the Salter-Swan tradables-nontradables model.\"},{\"question\":\"What key theoretical extension does the paper introduce beyond the Salter-Swan model?\",\"answer\":\"It generalizes the Salter-Swan model by incorporating imperfect substitutes for both imports and exports.\"},{\"question\":\"How does the proposed framework help estimate changes in the equilibrium real exchange rate?\",\"answer\":\"It provides a practical way to estimate changes using little more information than required for PPP calculations, while remaining consistent with extended Salter-Swan results and multisector CGE models.\"}]","External Shocks - Purchasing Power Parity and the Equilibrium Real Exchange Rate - Working Paper 611 | PDF",1788357609,88,{"code":4,"msg":32,"data":33},"ok",{"site_id":25,"language":24,"slug":34,"title":13,"keywords":35,"description":14,"schema_data":36,"social_meta":87,"head_meta":89,"extra_data":91,"updated_unix":29},"external-shocks-purchasing-power-parity-and-the-equilibrium-real-exchange-rate-working-paper-611","",{"@graph":37,"@context":86},[38,54,69],{"@type":39,"itemListElement":40},"BreadcrumbList",[41,45,48,51],{"item":42,"name":43,"@type":44,"position":21},"https://docshare.wps.com","Home","ListItem",{"item":46,"name":47,"@type":44,"position":20},"https://docshare.wps.com/document/","Document",{"item":49,"name":12,"@type":44,"position":50},"https://docshare.wps.com/document/research-report/",3,{"item":52,"name":13,"@type":44,"position":53},"https://docshare.wps.com/document/external-shocks-purchasing-power-parity-and-the-equilibrium-real-exchange-rate-working-paper-611/184258/",4,{"url":52,"name":13,"@type":55,"author":56,"headline":13,"publisher":58,"fileFormat":61,"inLanguage":24,"description":14,"dateModified":62,"datePublished":63,"encodingFormat":61,"isAccessibleForFree":64,"interactionStatistic":65},"DigitalDocument",{"name":9,"@type":57},"Person",{"url":42,"name":59,"@type":60},"DocShare","Organization","application/pdf","2026-09-06","2026-09-02",true,{"@type":66,"interactionType":67,"userInteractionCount":20},"InteractionCounter",{"@type":68},"ViewAction",{"@type":70,"mainEntity":71},"FAQPage",[72,78,82],{"name":73,"@type":74,"acceptedAnswer":75},"Which two approaches are commonly used to determine the equilibrium real exchange rate after external shocks?","Question",{"text":76,"@type":77},"They are purchasing power parity (PPP) calculations and the Salter-Swan tradables-nontradables model.","Answer",{"name":79,"@type":74,"acceptedAnswer":80},"What key theoretical extension does the paper introduce beyond the Salter-Swan model?",{"text":81,"@type":77},"It generalizes the Salter-Swan model by incorporating imperfect substitutes for both imports and exports.",{"name":83,"@type":74,"acceptedAnswer":84},"How does the proposed framework help estimate changes in the equilibrium real exchange rate?",{"text":85,"@type":77},"It provides a practical way to estimate changes using little more information than required for PPP calculations, while remaining consistent with extended Salter-Swan results and multisector CGE models.","https://schema.org",{"og:url":52,"og:type":88,"og:title":13,"og:site_name":59,"og:description":14},"article",{"robots":90,"canonical":52},"index,follow",{"doc_id":7,"site_id":25},{"code":4,"msg":5,"data":93},[94,98,102,106,111,116,121,124,129,132,136],{"id":21,"doc_module":4,"doc_module_name":47,"category_name":95,"show_sort_weight":96,"slug":97},"Story & Novel",90,"story-novel",{"id":20,"doc_module":4,"doc_module_name":47,"category_name":99,"show_sort_weight":100,"slug":101},"Literature",80,"literature",{"id":53,"doc_module":4,"doc_module_name":47,"category_name":103,"show_sort_weight":104,"slug":105},"Exam",70,"exam",{"id":107,"doc_module":4,"doc_module_name":47,"category_name":108,"show_sort_weight":109,"slug":110},5,"Comic",60,"comic",{"id":112,"doc_module":4,"doc_module_name":47,"category_name":113,"show_sort_weight":114,"slug":115},6,"Technology",50,"technology",{"id":117,"doc_module":4,"doc_module_name":47,"category_name":118,"show_sort_weight":119,"slug":120},7,"Healthcare",40,"healthcare",{"id":11,"doc_module":4,"doc_module_name":47,"category_name":12,"show_sort_weight":122,"slug":123},30,"research-report",{"id":125,"doc_module":4,"doc_module_name":47,"category_name":126,"show_sort_weight":127,"slug":128},9,"Religion & Spirituality",20,"religion-spirituality",{"id":127,"doc_module":4,"doc_module_name":47,"category_name":130,"show_sort_weight":127,"slug":131},"World Cup","world-cup",{"id":133,"doc_module":4,"doc_module_name":47,"category_name":134,"show_sort_weight":133,"slug":135},10,"Lifestyle","lifestyle",{"id":137,"doc_module":4,"doc_module_name":47,"category_name":138,"show_sort_weight":107,"slug":139},19,"General","general"]