This paper develops a theoretical model that allows assessing the poverty impact of the real
exchange rate (RER), as an economy-wide relative price, in a fully optimizing model at the
household and the firm levels. The model motivates empirical estimation of the response of
average household wage and non-wage incomes to RER depreciation/undervaluation. In
particular, it is possible to assess the extent to which an RER undervaluation (or RER
depreciation) is pro-poor, using a precise metric that compares the rate of change of the income
of the poor relative to that of the non-poor in response to RER devaluation/depreciation. We
estimate the model using national-level panel data from the Egyptian Central Agency for Public
Mobilization and Statistics and the ERF’s data bank. We find robust evidence suggesting that
strategic real currency depreciation, even undervaluation, at the macroeconomic level promotes
pro-poor income growth at the household level.