http://www.economist.com/blogs/dailychart/2010/11/economists_real_yuan-dollar_exchange_rateLISTEN to some Americans and you might believe that the under-valued yuan is the source of all that is wrong in the 50 states. But this is only part of the picture. The real exchange rate adjusts the nominal exchange rate—the one you normally see quoted—by taking into account changes in the price levels in the two countries involved. Chinese prices have risen much faster than American prices over the last few years, and that has meant a large adjustment in the real exchange rate. China's goods may still be somewhat undervalued in American markets. But the real shift in costs faced by consumers and firms has been a lot larger in recent years than the nominal exchange rate would lead you to believe.
