Title: The real exchange rate and quality improvements
Description: "This paper studies how the real exchange rate might respond to product innovation (improvements in  the quality of goods) as opposed to process innovation (increased efficiency in the production of goods).  We develop a two-country dynamic stochastic general equilibrium model, where quality improvements  affect both the demand and the supply side of the economy. We show that the real exchange rate  defined in terms of prices per quality unit (quality-adjusted prices) does not always move in the same  direction as that defined in terms of unit prices (quality-unadjusted prices), illustrating the importance of  measuring quality correctly."--Bank of England web site.