Labor Productivity and Real Exchange Rate: The Balassa-Samuelson Disconnect in the former Yugoslav Republic of Macedonia
June 1, 2005
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Summary
This paper seeks to investigate the transmission mechanisms linking productivity to the real exchange rate in the former Yugoslav Republic of Macedonia. At first glance, the stylized facts-low labor productivity growth and a trend real depreciation-suggest that a Balassa- Samuelson effect is in play. We find that the relationship between the two is not a result of the traditional Balassa-Samuelson effect. Instead, the depreciation of the real exchange rate reflects mainly the behavior of prices in the tradable sector. We argue that the depreciating real exchange rate may reflect a prolonged transition associated with slow technological growth and the low quality of the country's tradable-goods basket.
Subject: Labor productivity, Productivity, Purchasing power parity, Real effective exchange rates, Real exchange rates
Keywords: exchange rate, WP
Pages:
21
Volume:
2005
DOI:
Issue:
113
Series:
Working Paper No. 2005/113
Stock No:
WPIEA2005113
ISBN:
9781451861327
ISSN:
1018-5941
