Real, equilibrium exchange rate in an economy undergoing transformation
The critical role, in the control of growth and macroeconomic equilibrium, is played by the equilibrium-conditioned real exchange rate. This concept, being theoretically complex as well as difficult in practical implementation, should nonetheless be dwelled upon as it indicates ways of avoidance of serious errors in economic policy. The notion in question requires that a strategy-based approach to the exchange rate and macroeconomic policies be adopted. That, in turn, helps to diagnose the difference between the real exchange rate being observed and the strategically substantiated equilibrium rate. Identification of the latter, assisting policy makers in the formulation of long-range strategy, indicates the potentially desired changes in the real exchange rate.
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