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Real Exchange Rate

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PPGPortal > Home > Concept Dictionary > R > Real Exchange Rate

Real Exchange Rate  

The rate at which the goods and services of one country can be exchanged for the goods and services of another.

(Peter Dungan, Toronto PPG1002H and Principles of Macroeconomics by Mankiw, Kneebone, McKenzie and Rowe.)


The “real” exchange rate, as opposed to the “nominal” exchange rate, takes into account the price levels that exist in two different nations. Real Exchange Rates are of interest to economists because they allow us to include the effects of different inflation rates among countries when we are evaluating whether a particular nation’s currency is appreciating or depreciating in comparison to other currencies.


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