The NATREX approach offers an alternative paradigm to the Purchasing Power Parity for equilibrium real exchange rates. NATREX is the acronym for NATural Real EXchange, referring to a medium‐run, inter‐cyclical equilibrium real exchange rate, determined by real, fundamental factors. Importantly, the NATREX is a moving equilibrium real exchange rate, responding to continual changes in exogenous and endogenous real fundamentals. In a world of high capital mobility, the fundamentals of thrift, productivity, capital intensity, and net debt to foreigners become particularly important, influencing de ... More

The NATREX approach offers an alternative paradigm to the Purchasing Power Parity for equilibrium real exchange rates. NATREX is the acronym for NATural Real EXchange, referring to a medium‐run, inter‐cyclical equilibrium real exchange rate, determined by real, fundamental factors. Importantly, the NATREX is a moving equilibrium real exchange rate, responding to continual changes in exogenous and endogenous real fundamentals. In a world of high capital mobility, the fundamentals of thrift, productivity, capital intensity, and net debt to foreigners become particularly important, influencing desired long‐term capital flows and altering the equilibrium real exchange rate. The NATREX approach identifies and models the fundamental determinants of equilibrium real exchange rates, consistent with their recent empirical movements in various countries.