Productivity Shocks and Real Exchange Rates: A Reappraisal

2009 ◽  
Author(s):  
Tuomas A. Peltonen ◽  
Michael Sager
Keyword(s):  
Exchange Rates ◽  
Real Exchange Rates ◽  
Productivity Shocks

scholarly journals Productivity Shocks And Real Exchange Rates In The Long-Run: Evidence For The G3 And EU Economies

2011 ◽  
Vol 6 (10) ◽  
Author(s):  
Ordean Olson
Keyword(s):  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Real Exchange Rates ◽  
Empirical Support ◽  
The European Union ◽  
Power Parity ◽  
Productivity Shocks ◽  
Exchange Rate Fluctuations ◽  
Long Run ◽  
Equilibrium Relationships

This paper analyses the relationship between productivity and real exchange rates in Japan, United States, Germany and the European Union. Prior studies have revealed that productivity shocks have a minimum effect on real exchange rate fluctuations. This paper shows that productivity shocks account for most of the long-run fluctuations in the real exchange rates when long-run equilibrium relationships of the fundamental variables are considered. This would support empirical support of the Balassa Samuelson model where the main sources of long-run deviations for purchasing power parity are the differences in relative productivity.

scholarly journals Real Exchange Rates and Sectoral Productivity in the Eurozone

2018 ◽  
Vol 108 (6) ◽  
pp. 1543-1581 ◽  
Author(s):  
Martin Berka ◽  
Michael B. Devereux ◽  
Charles Engel
Keyword(s):  
Time Series ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Cross Section ◽  
Real Exchange Rates ◽  
Rate Variation ◽  
Productivity Shocks ◽  
Sectoral Productivity ◽  
Nominal Exchange Rates ◽  
Cross Country

We investigate the link between real exchange rates and sectoral TFP for eurozone countries. We show that real exchange rate variation, both cross-country and time-series, closely accords with an amended Balassa-Samuelson interpretation, incorporating sectoral productivity shocks and a labor market wedge. We construct a DSGE model to generate a cross section and time series of real exchange rates to compare to data. Estimates from simulated regressions are very similar to estimates for eurozone data. Our findings contrast with previous studies that have found little relationship between productivity and real exchange rates among high-income countries that have floating nominal exchange rates. (JEL E12, E23, E24, F31, F33, F43)

INVESTMENT AND REAL EXCHANGE RATES IN STICKY PRICE MODELS

2012 ◽  
Vol 17 (2) ◽  
pp. 195-234 ◽  
Author(s):  
Enrique Martínez-García ◽  
Jens Søndergaard
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Capital Accumulation ◽  
Real Exchange Rates ◽  
Exchange Rate Volatility ◽  
Monetary Shocks ◽  
Productivity Shocks ◽  
Exogenous Shocks

This paper investigates how the inclusion of capital in the workhorse new open economy macro model affects its ability to generate volatile and persistent real exchange rates. We show that capital accumulation facilitates intertemporal consumption smoothing and significantly reduces the volatility of the real exchange rate. Nonetheless, monetary and investment-specific technology (IST) shocks still induce more real exchange rate volatility and less consumption comovement than productivity shocks (with or without capital). We find that endogenous persistence is particularly sensitive to the inertia of the monetary policy rule even with persistent exogenous shocks. However, irrespective of whether capital is present, productivity and IST shocks trigger highly persistent real exchange rates, whereas monetary shocks do not. Moreover, we point out that IST shocks tend to generate countercyclical real exchange rates—unlike productivity or monetary shocks—but have the counterfactual effect of also producing excessive investment volatility and countercyclical consumption.

South Africa’s Trade Performance under Alternative Exchange Rate Regimes

2018 ◽  
Vol 10 (6) ◽  
pp. 261
Author(s):  
Romaine Patrick ◽  
Phocenah Nyatanga
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Exchange Rate Regime ◽  
Real Exchange Rates ◽  
Series Data ◽  
Growth Strategies ◽  
The Real ◽  
Real Price ◽  
Floating Exchange Rate

This study examined the effect exchange rates have on import and export volumes under alternative exchange rate policies adopted in South Africa over the period 1960 to 2017. Using quarterly time series data for the stated period, a log-linear error correction model is employed to estimate the country’s export and import elasticities, taking into account Gross Domestic Product (GDP), the real price of exports, the real price of imports and real exchange rates. Using the freely floating exchange rate regime as the base period, the study concluded that both export and import volumes are lower under a system of fixed exchange rates. Export and import volumes were also found to be lower under the dual exchange rate regime, relative to the freely floating exchange rate regime. In accordance with export-led growth strategies, exports were found to be higher and imports lower under a managed floating exchange rate regime. It is therefore recommended that South Africa revert to a more managed exchange rate regime, until the South African economy is developed to accommodate a freely floating exchange rate regime.

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