Real Exchange Rates and Productivity: Closed-Form Solutions and Some Empirical Evidence

IMF Working Papers, June 1, 2000

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Real Exchange Rates and Productivity: Closed-Form Solutions and Some Empirical Evidence

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Bibliographic details

• Authors: Jahanara Zaman
• Published: June 1, 2000
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451852264.001

Summary and main conclusion

• The 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 data for Group of Seven countries are consistent with the theoretical predictions.
• Using Johansen and Juselius (1990) multivariate cointegration tests, the study finds a statistically significant relationship between bilateral real exchange rates and international productivity differentials in the traded and nontraded sectors.

Methodology and analytical approach

• Theoretical framework: dynamic international general equilibrium model incorporating nontraded goods and productivity (technology) shocks.
• Econometric approach: Johansen and Juselius (1990) multivariate cointegration tests applied to bilateral real exchange rates and sectoral productivity differentials.

Empirical findings

• Evidence from Group of Seven countries supports the model’s predicted correlations between relative technology shocks and bilateral real exchange rate movements.
• A statistically significant cointegrating relationship is identified between:
  • bilateral real exchange rates, and
  • international productivity differentials in the traded and nontraded sectors.

Topics and keywords

• Subjects: 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

Content in this bundle

• Real Exchange Rates and Productivity: Closed-Form Solutions and Some Empirical Evidence - WP/00/99
  • Real Exchange Rates and Productivity: Closed-Form Solutions and Some Empirical Evidence - WP/00/99 (Markdown version)
  • Real Exchange Rates and Productivity: Closed-Form Solutions and Some Empirical Evidence - WP/00/99 (PDF)