Equilibrium real exchange rates: closed-form theoretical solutions and some empirical evidence

This paper generates closed-form theoretical solutions for the relationships among the real exchange rate, relative per capita consumption, and relative wealth in a stochastic dynamic general equilibrium model of two countries' representative consumers. The solutions offer insight into the robust cross-sectional relationship between relative per capita GDPs and relative national price levels established in Kravis and Lipsey (1983, 1987, 1988) …