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Introducing Bilateral Exchange Rates in Global CGE Models

Staff research note

This research note by Xiao-guang Zhang was released on 4 May 2018.

It discusses the role of national currencies and nominal exchange rates in CGE models. It uses a prototype model to demonstrate the theoretical properties of a multi-country CGE model with currencies and exchange rates.

It also uses a global CGE model using the GTAP data to show what is required to introduce bilateral nominal exchange rates into a conventional global CGE model and how this facilitates the implementation and the interpretation of alternative price adjustment mechanisms in the new model.

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