On the Consumption-Real Exchange Rate Anomaly
32 Pages Posted: 19 May 2005
Date Written: March 2005
Abstract
This paper addresses the consumption-real exchange rate anomaly. International real business cycle models based on complete financial markets predict a unitary correlation between the real exchange rate and the ratio of home to foreign consumption when subjected to supply-side shocks. In the data, this correlation is usually small and often negative. This paper shows that this anomaly can be successfully addressed by models that have an incomplete financial market structure and a non-traded as well as traded goods production sector.
Keywords: Consumption-real exchange rate anomaly, incomplete financial markets, non-traded goods
JEL Classification: F31, F41
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
International Trade and Macroeconomic Dynamics with Heterogeneous Firms
-
International Trade and Macroeconomic Dynamics with Heterogeneous Firms
-
Endogenous Tradability and Macroeconomic Implications
By Paul R. Bergin and Reuven Glick
-
Productivity, Tradability, and the Long-Run Price Puzzle
By Paul R. Bergin, Reuven Glick, ...
-
Productivity, Tradability and the Long-Run Price Puzzle
By Paul R. Bergin, Reuven Glick, ...
-
Productivity, Tradability, and the Long-Run Price Puzzle
By Paul R. Bergin, Reuven Glick, ...
-
Tradability, Productivity, and Understanding International Economic Integration
By Paul R. Bergin and Reuven Glick
-
Tradability, Productivity, and Understanding International Economic Integration
By Paul R. Bergin and Reuven Glick
-
Trade Integration and Risk Sharing
By Aart Kraay and Jaume Ventura
-
Trade Integration and Risk Sharing
By Aart Kraay and Jaume Ventura