True or False?
False! The real exchange rate between any two countries' outputs is determined by shocks to technology, savings, investment and government policy that interact in ways, the details of which are not at this time well understood. While the resulting real exchange rate movements may appear random to us, they are not in fact generated by some mechanical random process. Sophisticated statistical random processes will, of course, often describe them well. The random walk model is one such process. But good statistical fits unfortunately tell us nothing about causation.