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I would like to calculate the real domestic return of a foreign asset


What I know

Real price is $$P_{Real, t} = \frac{P_{Nominal, t}}{CPI_t}$$

where CPI is consumer price index.

And I know that the nominal domestic return of a foreign asset is calculated as follows:

$$R_{Nominal, Domestic, t} = \frac{(P_{Nominal, Domestic, t}) \times E_t}{(P_{Nominal, Domestic, t-1}) \times E_{t-1}}$$

Then, when I want to calculate the real domestic return of a foreign asset, would I do as follows?

$$R_{Nominal, Domestic, t} = \frac{((P_{Nominal, Domestic, t}) \times E_t )/ CPI_t}{((P_{Nominal, Domestic, t-1}) \times E_{t-1}) /CPI_{t-1}}$$

where E shows the exchange rate.

Is this way true? How can I calculate?

Please share your ideas with me. Thank you in advance.

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  • $\begingroup$ Looks right to me. $\endgroup$ – noob2 Apr 1 at 13:16
  • $\begingroup$ Thank you for your response @noob2 or Should I calculate this by using the real exchange rate formula? formulae2020jakarta.blogspot.com/2018/10/… $\endgroup$ – 1190 Apr 1 at 14:53
  • $\begingroup$ If done carefully both methods should give the same result $\endgroup$ – noob2 Apr 1 at 23:50

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