The Range and Determinants of the Real Exchange Rates

The Range and Determinants of the Real Exchange Rates

This paper examines the limit and determinants of the fluctuation of the real exchange rates between two countries. With a two-country and two-good model, where one country is a natural resource exporting country and the other is a manufacturing goods exporting country, this study employs a positive profit condition and proves the existence of the limit of the real exchange rates. The effects of determinants of the range of real exchange rates are investigated. It is found that the demand of non-wage earners is the only determinant which clearly widens or reduces the range while other determinants shift the range upward or downward. (JEL Classification: F3)