Chapter

The NATREX model of the equilibrium real exchange rate

Jerome L. Stein

in Stochastic Optimal Control, International Finance, and Debt Crises

Published in print April 2006 | ISBN: 9780199280575
Published online May 2006 | e-ISBN: 9780191603501 | DOI: http://dx.doi.org/10.1093/0199280576.003.0004
 							The NATREX model of the equilibrium real exchange rate

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The NATREX is a model of the equilibrium real exchange rate, which is where the real exchange rate is heading. The NATREX model has two components: the long-run equilibrium real exchange rate and the dynamics of adjustment of the medium-run equilibrium to the long-run equilibrium. In the medium-run equilibrium, the ratio of the external debt/GDP is predetermined, and the real exchange rate is associated with both internal and external balance. The real exchange rate and debt ratio are endogenous variables. In full stock-flow equilibrium, the long run equilibrium real exchange rate and external debt ratio depend upon the vector of time varying fundamentals, which are productivity and thrift in the country relative to the rest of the world.

Keywords: NATREX; equilibrium real exchange rate; dynamics of adjustment; medium-run equilibrium; internal balance; external balance; stock-flow equilibrium; productivity; thrift; external debt

Chapter.  13881 words.  Illustrated.

Subjects: Financial Markets

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