<p>Depends of which currency is in the nominator of the NER.</p>

<p>E.g. if you are calculating the real exchange rate between the US and the Eurozone
<span class="math-container">$$
\text{RER} = 0.88 \frac{\text{EUR}}{\text{USD}} \frac{p_{\text{US}}}{p_{\text{EZ}}}.
$$</span>
Since <span class="math-container">$p_{\text{US}}$</span> is measured in USD, and <span class="math-container">$p_{\text{EZ}}$</span> is measured in EUR, this is the only way RER will make sense. If you calculated
<span class="math-container">$$
0.88 \frac{\text{EUR}}{\text{USD}} \frac{p_{\text{EZ}}}{p_{\text{US}}}
$$</span>
you would get something that is measured in EUR<span class="math-container">$^2/$</span>USD<span class="math-container">$^2$</span>, which would be very strange indeed.</p>

CC BY-SA 4.0
2018-11-26T08:31:03.723Z
But even the first formula, what does this ratio actually imply?
user585380
CC BY-SA 4.0
2018-11-26T11:49:37.397Z
Please post new questions as new questions, not comments.
Giskard
CC BY-SA 4.0
2018-11-25T20:27:39.543Z
2018-11-25T20:27:39.543Z
Giskard
<p>I have a doubt: I'm studying about real exchange rates and I'm having some problem with the formula.</p>

<p>RER= NER* price ratio</p>

<p>What I don't understand is how do you take this price ratio? Which price appears in the numerator and which one in the denominator?</p>

<macroeconomics><exchange-rates>
Real exchange rate
user585380
# Real exchange rate

(Asked by: username_0 on 2018-11-25)

I have a doubt: I'm studying about real exchange rates and I'm having some problem with the formula.

RER= NER\* price ratio

What I don't understand is how do you take this price ratio? Which price appears in the numerator and which one in the denominator?

**Tags:** macroeconomics, exchange-rates

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## 1 answers

### Answer by username_1 on 2018-11-25. Score: 1

Depends of which currency is in the nominator of the NER.

E.g. if you are calculating the real exchange rate between the US and the Eurozone
$$
\text{RER} = 0.88 \frac{\text{EUR}}{\text{USD}} \frac{p\_{\text{US}}}{p\_{\text{EZ}}}.
$$
Since $p\_{\text{US}}$ is measured in USD, and $p\_{\text{EZ}}$ is measured in EUR, this is the only way RER will make sense. If you calculated
$$
0.88 \frac{\text{EUR}}{\text{USD}} \frac{p\_{\text{EZ}}}{p\_{\text{US}}}
$$
you would get something that is measured in EUR$^2/$USD$^2$, which would be very strange indeed.

> **Comments:**
> **username_0**: But even the first formula, what does this ratio actually imply?  
> **username_1**: Please post new questions as new questions, not comments.  

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