Real Exchange Rates and Productivity: Closed-Form Solutions and Some Empirical Evidence
June 1, 2000
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Summary
This paper examines the impact of productivity shocks on real exchange rate fluctuations in a dynamic international general equilibrium model with nontraded goods. The model predicts a close association between relative technology shocks and bilateral real exchange rate movements. Empirical results based on the data for Group of Seven countries are consistent with the predicted theoretical correlations. Using Johansen and Juselius (1990) multivariate cointegration tests the study finds that a statistically significant relationship exists between bilateral real exchange rates and international productivity differentials in the traded and nontraded sectors.
Subject: Consumption, Exchange rates, Foreign exchange, National accounts, Production, Productivity, Purchasing power parity, Real exchange rates
Keywords: Cointegration, Consumption, exchange rate movement, Exchange rates, Productivity, productivity differential, productivity shock, productivity-differentials model, Purchasing power parity, real exchange rate, Real Exchange Rates, shock process, Technology Shocks, WP
Pages:
38
Volume:
2000
DOI:
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Issue:
099
Series:
Working Paper No. 2000/099
Stock No:
WPIEA0992000
ISBN:
9781451852264
ISSN:
1018-5941
