Leonardo Badea, First Deputy Governor BNR: A conceptual analysis on the evolution of the real exchange rate in Central and Eastern Europe after the outbreak of the pandemic

The exchange rate is a fundamental variable, influencing both the dynamics of the real economy (macro dimension) and the development within the financial sector (hence its financial dimension). Often, the sense in which the population perceives this macro-financial variable differs significantly from the sense attributed by economists. The population refers almost explicitly to the nominal exchange rate, which represents the relative price of two currencies from different countries. An important concept for macroeconomists is the real exchange rate, which shows the relative price of goods from two countries. More specifically, the real exchange rate reflects the rate at which goods from one country can be exchanged for goods from another. The rate at which goods from a certain country are exchanged with goods from another country is of course influenced by the nominal exchange rate. Thus, the relationship between the nominal exchange rate and the real rate is given by the following ...