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I'm working on a gravity model analysing the factors that affect national imports, and the results showed that the real exchange rate (real exchange rate between local currency and foreign currency) has a positive effect on national imports and it is even statistically significant.

Could you please tell me any situations where this can make sense? Thanks.

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  • $\begingroup$ In your question you are ambiguous about the sign of the effect. You should definitely expect negative significant effect of real exchange rate on imports $\endgroup$
    – 1muflon1
    Dec 6 '21 at 10:29
  • $\begingroup$ @1muflon1 I don't know how to explain this. Could you tell me how real exchange rate can have a negative effect on imports? $\endgroup$
    – Katie
    Dec 6 '21 at 10:50
  • $\begingroup$ when real exchange falls exports become relatively more expensive $\endgroup$
    – 1muflon1
    Dec 6 '21 at 10:53
  • $\begingroup$ @1muflon1 oops sorry I made a mistake. I meant positive... sorry. Can you give me an explanation for this situation please? $\endgroup$
    – Katie
    Dec 6 '21 at 11:44
  • $\begingroup$ Think real exchange rates in terms of purchasing powers $\endgroup$
    – Rumi
    Dec 7 '21 at 4:12

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