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It strips out national differences in inflation rates and the measurement of capital ratios.
Its real exchange rate (which takes account of differences in inflation between Japan and its trading partners) fell to a 23-year low last month (see chart).
Comparisons over time need to be adjusted for variations in price levels, but this is not always a simple matter, especially given differences in inflation rates between countries.
Differences in inflation are magnified: in countries with higher-than-average inflation (eg, Italy), the real interest is too low, fuelling more inflation; the opposite is true in countries where inflation is low (eg, Germany).
But administration officials have tended to follow the practice of many economists in adjusting exchange rates based on the differences in inflation at the consumer level in two countries.
The key thing is to take account of differences in inflation: if one country has higher inflation than its trading partners, its currency band should be lowered to facilitate a gradual nominal depreciation.
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But the renminbi has slipped 1 percent against the dollar from its peak on May 2. The difference in inflation rates has also reversed in recent months, with producer prices in China down 2.1 percent in June from a year ago, even as they rose 0.1 percent in the United States.
Differences in domestic inflation rates have played a role, as expected.
When differences in lung inflation and tissue volume were accounted for (KiS), the significant interaction between ventilation strategy and isogravitational region on KiS was maintained (P = 0.004), as was the independent effect of isogravitational region (P = 0.001).
There is today (with the exception of Greece) very little difference in national inflation rates in the euro zone.
Yes, there are differences in growth rates, inflation, etc., among countries, but not so great — or predictable — that you can exploit them long term for diversification's sake.
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