Real Exchange Rates and the Prices of Nontradable Goods

ByS. Micossi, Gian M Milesi-Ferretti

February 1, 1994

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Deflation, Economic sectors, Foreign exchange, Inflation, Manufacturing, Prices, Production, Productivity, Real exchange rates

Keywords: Deflation, EMS dummy, GDP deflator, Global, goods deflator, Inflation, inflation differential, labor productivity, Manufacturing, mechanism of the EMS, Productivity, productivity development, productivity differential, productivity rates of change, Real exchange rates, relative price, tradable goods, WP

Pages:
38
Volume:
1994
DOI:
https://doi.org/10.5089/9781451922516.001
Issue:
019
Series:
Working Paper No. 1994/019
Stock No:
WPIEA0191994
ISBN:
9781451922516
ISSN:
1018-5941

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