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Author: Man-Keung Tang
Publisher: International Monetary Fund
ISBN: 145185725X
Category : Business & Economics
Languages : en
Pages : 41
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Book Description
We revisit the time-honored link between productivity and the real exchange rate. Consistent with the traditional view, we find that higher labor productivity tends to lead to appreciation of the real exchange rate. Contrary to the traditional view, however, we find that the positive productivity effect is transmitted through the real exchange rate based on tradable prices, rather than through relative prices between tradables and nontradables. Moreover, higher total factor productivity is found, if anything, to lead to depreciation of the real exchange rate. These last two pieces of evidence provide support for the emerging view that limited tradability of goods and services provides scope for the strategic pricing decision, which has material consequences for the aggregate real exchange rate.
Author: Man-Keung Tang
Publisher: International Monetary Fund
ISBN: 145185725X
Category : Business & Economics
Languages : en
Pages : 41
Get Book Here
Book Description
We revisit the time-honored link between productivity and the real exchange rate. Consistent with the traditional view, we find that higher labor productivity tends to lead to appreciation of the real exchange rate. Contrary to the traditional view, however, we find that the positive productivity effect is transmitted through the real exchange rate based on tradable prices, rather than through relative prices between tradables and nontradables. Moreover, higher total factor productivity is found, if anything, to lead to depreciation of the real exchange rate. These last two pieces of evidence provide support for the emerging view that limited tradability of goods and services provides scope for the strategic pricing decision, which has material consequences for the aggregate real exchange rate.
Author: Jaewoo ; Tang Lee (Man-Keung)
Publisher:
ISBN:
Category :
Languages : en
Pages : 39
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Book Description
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1455210781
Category : Business & Economics
Languages : en
Pages : 34
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Book Description
We review the literature on Dutch disease, and document that shocks that trigger foreign exchange inflows (such as natural resource booms, surges in foreign aid, remittances, or capital inflows) appreciate the real exchange rate, generate factor reallocation, and reduce manufacturing output and net exports. We also observe that real exchange rate misalignment due to overvaluation and higher volatility of the real exchange rate lower growth. Regarding the effect of undervaluation of the exchange rate on economic growth, the evidence is mixed and inconclusive. However, there is no evidence in the literature that Dutch disease reduces overall economic growth. Policy responses should aim at adequately managing the boom and the risks associated with it.
Author: Mr.Gian Milesi-Ferretti
Publisher: International Monetary Fund
ISBN: 1451922515
Category : Business & Economics
Languages : en
Pages : 38
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Book Description
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.
Author: Jaewoo Lee
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Revisiting the time-honored link between productivity growth and the real exchange rate, we find that higher labor productivity tends to appreciate the real exchange rate, consistent with the traditional view. Contrary to the traditional view, however, we find that the positive productivity effect is transmitted through the relative price between tradable goods, rather than through the relative price between tradables and nontradables. Moreover, higher total factor productivity is found to often depreciate the real exchange rate. These latter two pieces of evidence, combined with the conceptual strength of total factor productivity over labor productivity as a productivity measure, call for further refinement of the conventional view regarding the effect of productivity on the real exchange rate.
Author: Mr.Enrique G. Mendoza
Publisher: International Monetary Fund
ISBN: 145184798X
Category : Business & Economics
Languages : en
Pages : 46
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Book Description
We develop a two-country, balanced-growth intertemporal general equilibrium model to examine two predictions of the Balassa-Samuelson model, namely that (i) productivity differentials determine the domestic relative price of nontradables and (ii) deviations from purchasing power parity reflect differences in the relative price of nontradables. In our model, the equilibrium relative price of nontradables along the long-run balanced-growth path is determined by the ratio of the marginal products of labor in the tradable and nontradable sectors. The empirical relevance of the Balassa-Samuelson predictions is examined using the Hodrick-Prescott filter to extract long-run components from a panel database for fourteen OECD countries. The evidence indicates that labor productivity differentials do explain long-run, cross-country differences in relative prices. The predicted relative prices, however, are of little help in explaining long-run deviations from purchasing power parity.
Author: Mr.Hamid Faruqee
Publisher: International Monetary Fund
ISBN: 1451851359
Category : Business & Economics
Languages : en
Pages : 40
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Book Description
This paper examines the long-run determinants of the real exchange rate from a stock-flow perspective. The empirical analysis estimates a long-run relationship between the real exchange rate, net foreign assets and other factors affecting trade flows. Using postwar data for the United States and Japan, cointegration analysis supports the finding that the structural factors underlying each country’s net trade and net foreign asset positions determine the long-run path for the real value of the dollar and the yen. The empirical analysis also provides estimates for the underlying stochastic trend in each real exchange rate series.
Author: Menzie David Chinn
Publisher: International Monetary Fund
ISBN: 1451962169
Category : Business & Economics
Languages : en
Pages : 33
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Book Description
We investigate the long-run relationship between the real exchange rate, traded and nontraded productivity levels, and government spending for 14 OECD countries, using recently developed panel cointegration tests. The results indicate that under certain assumptions it is easier to detect cointegration in panel data than in the available time series; moreover, the rate of reversion to long-run equilibrium is estimated with greater precision. Using the model augmented by oil prices, we find that in 1991 (the last year productivity data are available) there is less overvaluation of the U.S. dollar than that implied by a naive version of purchasing power parity.
Author: Taya Dumrongrittikul
Publisher:
ISBN:
Category :
Languages : en
Pages : 208
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Book Description
The aim of this thesis is to combine economic theory and empirical analysis in an effort to understand the dynamic effects of real exchange rate determinants, policies and global factors on real exchange rates. This thesis comprises three related essays.The first essay examines the validity of the Balassa-Samuelson hypothesis (BSH). This study introduces a new approach for classifying traded and non-traded industries which allows for country-specific heterogeneity and trade endogeneity, and then uses this classification in the construction of a model that allows for the Balassa-Samuelson effect. We find that in developed countries, productivity growth in traded sectors leads to a real depreciation, inconsistent with the BSH; however, higher economic growth will be followed by a real appreciation. The results of developing countries support the BSH, although persistence profiles show slow speeds of convergence.The second essay extends the analysis into a general model of real exchange rates. It investigates the impact of trade liberalisation, productivity growth, monetary policy and government consumption on real exchange rates in four panels of countries consisting of European, non-European developed, Asian developing and non-Asian developing countries. The analysis is based on a panel structural vector error correction model augmented with foreign variables, and a Bayesian approach is used to implement sign restrictions with a penalty function for undertaking impulse response analysis. We find that trade liberalisation generates depreciation and higher government consumption causes persistent appreciation. A contractionary monetary policy shock has only short-run impact on real exchange rates, corresponding to the long-run neutrality of monetary policy. Traded-sector productivity gains cause an impact appreciation in Asian developing countries and lead to persistent appreciation in non-Asian developing countries, whereas the shocks induce long-run depreciation in developed countries, in line with the results in the first essay.The third essay combines the four panels of countries into a Global Vector Autoregressive (GVAR) model to examine how real exchange rates and key macroeconomic variables respond to an oil price shock, a US monetary policy shock and simultaneous shocks to productivity in four large Asian emerging economies. Using a sign restricted impulse response approach, we find that an oil price shock causes a depreciation of the US dollar as well as economic recession and excessive inflation in the global economy. The way in which monetary policy deals with the shock matters for the long-run level of economic activity. An unexpected US monetary tightening causes an appreciation of the US dollar and a fall in real GDP and inflation over the long run. The monetary policy reaction to this change seems to be stronger in developing countries than in developed countries. Simultaneous shocks to traded-sector productivity in China, India, Korea and Indonesia induce a rise in real GDP and currency appreciation in these four countries. Meanwhile, many Asian countries benefit from the shocks with higher productivity and GDP. The value of their currency is likely to appreciate.
Author: Richard C. Marston
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Real exchange rates between the yen and dollar based on general price indexes overestimate the competitiveness of the United States relative to Japan. High productivity growth in the traded sector of the Japanese economy results in a continuous fall in the prices of traded goods relative to nontraded goods in Japan. In order to keep U.S. traded goods competitive, the real exchange rate based on general price series like the GDP deflator or the CPI index must continually fall resulting in a real appreciation of the yen.This paper provides estimates of how far real exchange rates based on general price series would have had to fall over the 1973-83 period in order to keep U.S. traded goods competitive. The real exchange rate based on GDP deflators, for example, would have had to fall by 38% relative to the real exchange rate based on unit labor costs in the traded sector. The GDP series remained roughly constant over the period, thus giving the misleading impression that U.S. goods were still competitive despite a sharp rise in the relative price of U.S. traded goods. The paper also provides estimates of the relative wage changes which would have to occur to restore the competitiveness of U.S. traded goods
