Re: Unequal exchange

Great stuff, Arno. Where, however, do you factor in specific exchange 
rate policies aimed at overvaluing or undervaluing a currency? E.g., 
in Zimbabwe now, there is a huge debate about whether the Zimdollar 
is over or undervalued, with parallel rates at Z$80/US$1, but 
official still steady (for last six months) at Z$55/US$1 (Zim's 
inflation is roughly 65% over that period). There's tight control 
over forex which explains the ability to peg. But in last week's main 
business rag, the finance minister (a bourgeois guy, well respected) 
claimed the Zimdollar is overvalued and it's only speculators pulling 
the black market price way down. If it's as easy to get these kind of 
distortions and deviations from "value" (whatEVER the hell that 
means! -- and who after all has ever found out scientifically!) in 
wee (relatively defenseless) Zimbabwe, I wonder about countries that 
are regular victims of speculative attacks.

Here in South Africa, for instance, we've suffered three crashes of 
the Rand (of 25% in nominal terms, over a few weeks or months) in 
spite of single-digit inflation, since exchange controls were lifted 
in 1995.

So, the enormous fluctuations makes me wary of too much reliance on a 
single exchange-rate indicator of unequal exchange. It's much too 
much a factor of policy and of speculation to be scientific, I would 
guess.

But am I wrong somewhere here, or do you have sufficiently lengthy 
time series to wash out my objections??

Cheers,
Patrick