Consider the following data on USDMXN and price levels in the United States and

Question

Consider the following data on USDMXN and price levels in the United States and Mexico. Calculate the real exchange rate at t=0.
            Price Level (P)             
Year     USDMXN        Mexico            United States    Real Exchange (q)
-3         13.00               100                              100                  ?
-2         13.50               105                              102                  ?
-1         14.00               111                              104                  ?          
  0        14.50               116                              107                  ?

Explanation / Answer

Real exchange rate = price * mexico /united states

Year real exchange rate -3 13*100/100 13 -2 13.50*105/102 13.90 -1 14*111/104 14.94 0 14.50/116/107 15.72

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