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

_IMF Working Papers, June 1, 2000_

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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

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### 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

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/real-exchange-rates-and-productivity-closed-form-solutions-and-some-empirical-evidence-3589_