Real Exchange Rates and Sectoral Productivity in the Eurozone
71 Pages Posted: 21 Oct 2014
There are 4 versions of this paper
Real Exchange Rates and Sectoral Productivity in the Eurozone
Real Exchange Rates and Sectoral Productivity in the Eurozone
Real Exchange Rates and Sectoral Productivity in the Eurozone
Real Exchange Rates and Sectoral Productivity in the Eurozone
Date Written: October 2014
Abstract
We investigate the link between real exchange rates and sectoral total factor productivity measures for countries in the Eurozone. Real exchange rate patterns closely accord with an amended Balassa-Samuelson interpretation, both in cross-section and time series. We construct a sticky price dynamic general equilibrium model to generate a cross-section and time series of real exchange rates that can be directly compared to the data. Under the assumption of a common currency, estimates from simulated regressions are very similar to the empirical estimates for the Eurozone. Our findings contrast with previous studies that have found little relationship between productivity levels and the real exchange rate among high-income countries, but those studies have included country pairs which have a floating nominal exchange rate.
Keywords: Balassa-Samuelson, Eurozone, Real Exchange Rates, Total Factor Productivity, Unit Labor Cost
JEL Classification: F31, F41
Suggested Citation: Suggested Citation