Real Exchange Rates and the Prices of Nontradable Goods

Real Exchange Rates and the Prices of Nontradable Goods PDF

Author: Mr.Gian Milesi-Ferretti

Publisher: International Monetary Fund

Published: 1994-02-01

Total Pages: 38

ISBN-13: 1451922515

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This paper attempts to provide a perspective on real exchange rate developments following the inception of the EMS. The focus is on structural determinants of real exchange rates, notably the behavior of tradables and nontradable prices and productivity. It is found that changes in the relative price of tradable goods in terms of nontradables account for a sizable fraction of real exchange rate dynamics during the EMS period. Sectoral productivity growth differential help explain the behavior of the relative price of tradable goods, especially in the long run. There is also some evidence that the EMS has extended on relative price behavior.

Real Exchange Rates and the Prices of Nontradable Goods

Real Exchange Rates and the Prices of Nontradable Goods PDF

Author: Stefano Micossi

Publisher:

Published: 2006

Total Pages: 38

ISBN-13:

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This paper attempts to provide a perspective on real exchange rate developments following the inception of the EMS. The focus is on structural determinants of real exchange rates, notably the behavior of tradables and nontradable prices and productivity. It is found that changes in the relative price of tradable goods in terms of nontradables account for a sizable fraction of real exchange rate dynamics during the EMS period. Sectoral productivity growth differential help explain the behavior of the relative price of tradable goods, especially in the long run. There is also some evidence that the EMS has extended on relative price behavior.

Real Exchange Rates and Fundamentals

Real Exchange Rates and Fundamentals PDF

Author: Luca Antonio Ricci

Publisher: International Monetary Fund

Published: 2008

Total Pages: 32

ISBN-13:

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This paper employs newly constructed measures for productivity differentials, external imbalances, and commodity terms of trade to estimate a panel cointegrating relationship between real exchange rates and a set of fundamentals for a sample of 48 industrial countries and emerging markets. It finds evidence of a strong positive relation between the CPI-based real exchange rate and commodity terms of trade. The estimated impact of productivity growth differentials between traded and nontraded goods, while statistically significant, is small. Increases in net foreign assets and in government consumption tend to be associated with appreciating real exchange rates.

Open Economy Macroeconomics

Open Economy Macroeconomics PDF

Author: Martín Uribe

Publisher: Princeton University Press

Published: 2017-04-04

Total Pages: 646

ISBN-13: 0691158770

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A cutting-edge graduate-level textbook on the macroeconomics of international trade Combining theoretical models and data in ways unimaginable just a few years ago, open economy macroeconomics has experienced enormous growth over the past several decades. This rigorous and self-contained textbook brings graduate students, scholars, and policymakers to the research frontier and provides the tools and context necessary for new research and policy proposals. Martín Uribe and Stephanie Schmitt-Grohé factor in the discipline's latest developments, including major theoretical advances in incorporating financial and nominal frictions into microfounded dynamic models of the open economy, the availability of macro- and microdata for emerging and developed countries, and a revolution in the tools available to simulate and estimate dynamic stochastic models. The authors begin with a canonical general equilibrium model of an open economy and then build levels of complexity through the coverage of important topics such as international business-cycle analysis, financial frictions as drivers and transmitters of business cycles and global crises, sovereign default, pecuniary externalities, involuntary unemployment, optimal macroprudential policy, and the role of nominal rigidities in shaping optimal exchange-rate policy. Based on courses taught at several universities, Open Economy Macroeconomics is an essential resource for students, researchers, and practitioners. Detailed exploration of international business-cycle analysis Coverage of financial frictions as drivers and transmitters of business cycles and global crises Extensive investigation of nominal rigidities and their role in shaping optimal exchange-rate policy Other topics include fixed exchange-rate regimes, involuntary unemployment, optimal macroprudential policy, and sovereign default and debt sustainability Chapters include exercises and replication codes

Non Tradable Goods and the Real Exchange Rate

Non Tradable Goods and the Real Exchange Rate PDF

Author: Pau Rabanal

Publisher:

Published: 2009

Total Pages: 50

ISBN-13:

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How important are nontradable goods and distribution costs to explain real exchange rate dynamics? We answer this question by estimating a general equilibrium model with intermediate and final tradable and nontradable goods. We obtain reasonable estimated parameter values using Bayesian methods, and find that the estimated model can match real exchange rate persistence and, to less extent, volatility. Nontradable sector technology shocks explain about one third of real exchange rate volatility. We present impulse responses to better understand the transmission mechanism of shocks in the open economy. We also show that in order to explain the low correlation between the ratio of relative consumption and the real exchange rates across countries, fiscal policy shocks are necessary in the model, in addition to technology shocks.

Estimating the Equilibrium Real Exchange Rate

Estimating the Equilibrium Real Exchange Rate PDF

Author: Mr.Tarhan Feyzioglu

Publisher: International Monetary Fund

Published: 1997-09-01

Total Pages: 25

ISBN-13: 1451853173

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An equilibrium exchange rate is here defined as the level that is consistent with simultaneous internal and external balances as specified in Montiel (1996). Exogenous “fundamental” variables determining these balances are identified. Along the lines of Edwards (1994), a reduced form is estimated with the cointegration technique for Finland for the period 1975-95. The estimation produced a reasonable set of equilibrium exchange rates that appreciate with positive shocks to the terms of trade, world real interest rates, and the productivity differential between Finland and its trading partners.

Real Exchange Rates, Economic Complexity, and Investment

Real Exchange Rates, Economic Complexity, and Investment PDF

Author: Steve Brito

Publisher: International Monetary Fund

Published: 2018-05-10

Total Pages: 21

ISBN-13: 1484356349

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We show that the response of firm-level investment to real exchange rate movements varies depending on the production structure of the economy. Firms in advanced economies and in emerging Asia increase investment when the domestic currency weakens, in line with the traditional Mundell-Fleming model. However, in other emerging market and developing economies, as well as some advanced economies with a low degree of structural economic complexity, corporate investment increases when the domestic currency strengthens. This result is consistent with Diaz Alejandro (1963)—in economies where capital goods are mostly imported, a stronger real exchange rate reduces investment costs for domestic firms.

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