Real Exchange Rates and Sectoral Productivity in the Eurozone
Martin Berka, Michael B. Devereux, Charles Engel
American Economic Review · 2018 · Volume 108 · Issue 6
Abstract
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.
Keywords
General Aggregative Models: Keynes, Keynesian, Post-Keynesian, Macroeconomics: Production, Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital, Aggregate Labor Productivity, Foreign Exchange, International Monetary Arrangements and Institutions, Economic Growth of Open Economies
Enable JavaScript for citation tools and additional paper interactions.