Real Exchange Rates and the Relative Prices of Non-Traded and Traded Goods: An Empirical Analysis

This paper provides an empirical analysis of the decomposition of UK real exchange rates into the relative price of traded goods and the ratio of the relative price of non-traded to traded goods, and tests the prediction that deviations from the law of one price in tradable goods dominate real exchange rate variability only in the short run.

June 2004 · Jan J. J. Groen, Clare Lombardelli