Pricey

THERE was an interesting factoid that we did not have room to mention in our recent piece on the rouble. Though it is still much less valuable than it was a year ago, by some measures it is still very overvalued. The chart below, from Zsolt Darvas of Bruegel, a think-tank, shows the “real effective exchange rate” for four currencies: the rouble, the dollar, the “German euro” and the “Greek euro” (the last two indices adjust the value of the euro for inflation in Germany and Greece). It is indexed to May 2000, the month that Vladimir Putin first became president of Russia.

The real effective exchange adjusts the market exchange rate for inflation. This is an important adjustment. If the exchange rate between two countries is fixed, but their inflation...Continue reading