Real Exchange Rates and Sectoral Productivity in the Eurozone†

Real Exchange Rates and Sectoral Productivity in the Eurozone† AbstractWe investigate the link between real exchange rates and sectoral TFP for eurozone countries. We show that real exchange rate variation, both cross-country and time-series, closely accords with an amended Balassa-Samuelson interpretation, incorporating sectoral productivity shocks and a labor market wedge. We construct a DSGE model to generate a cross section and time series of real exchange rates to compare to data. Estimates from simulated regressions are very similar to estimates for eurozone data. Our findings contrast with previous studies that have found little relationship between productivity and real exchange rates among high-income countries that have floating nominal exchange rates. (JEL E12, E23, E24, F31, F33, F43) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Real Exchange Rates and Sectoral Productivity in the Eurozone†

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Publisher
American Economic Association
Copyright
Copyright © 2018 © American Economic Association
ISSN
0002-8282
D.O.I.
10.1257/aer.20151045
Publisher site
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Abstract

AbstractWe investigate the link between real exchange rates and sectoral TFP for eurozone countries. We show that real exchange rate variation, both cross-country and time-series, closely accords with an amended Balassa-Samuelson interpretation, incorporating sectoral productivity shocks and a labor market wedge. We construct a DSGE model to generate a cross section and time series of real exchange rates to compare to data. Estimates from simulated regressions are very similar to estimates for eurozone data. Our findings contrast with previous studies that have found little relationship between productivity and real exchange rates among high-income countries that have floating nominal exchange rates. (JEL E12, E23, E24, F31, F33, F43)

Journal

American Economic ReviewAmerican Economic Association

Published: Jun 1, 2018

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