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Sticky Prices And Sectoral Real Exchange Rates
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Book Synopsis Sticky Prices and Sectoral Real Exchange Rates by : Patrick J. Kehoe
Download or read book Sticky Prices and Sectoral Real Exchange Rates written by Patrick J. Kehoe and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The classic explanation for the persistence and volatility of real exchange rates is that they are the result of nominal shocks in an economy with sticky goods prices. A key implication of this explanation is that if goods have differing degrees of price stickiness then relatively more sticky goods tend to have relatively more persistent and volatile good-level real exchange rates. Using panel data, we find only modest support for these key implications. The predictions of the theory for persistence have some modest support: in the data, the stickier is the price of a good the more persistent is its real exchange rate, but the theory predicts much more variation in persistence than is in the data. The predictions of the theory for volatiity fare less well: in the data, the stickier is the price of a good the smaller is its conditional variance while in the theory the opposite holds. We show that allowing for pricing complementarities leads to a modest improvement in the theory's predictions for persistence but little improvement in the theory's predictions for conditional variances.
Book Synopsis Do sticky prices increase real exchange rate volatility at the sector level? by : Mario J. Crucini
Download or read book Do sticky prices increase real exchange rate volatility at the sector level? written by Mario J. Crucini and published by . This book was released on 2010 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We introduce the real exchange rate volatility curve as a useful device to understand the role of price stickiness in accounting for deviations from the Law of One Price at the sector level. In the presence of both nominal and real shocks, the theory predicts that the real exchange rate volatility curve is a U-shaped function of the degree of price stickiness. Using sector-level European real exchange rate data and frequency of price changes, we estimate the volatility curve. The results are consistent with the predominance of real effects over nominal effects. Nonparametric analysis suggests the curve is convex and negatively sloped over the majority of its range. Good-by-good variance decompositions show that the relative contribution of nominal shocks is smaller at the sector level than what previous studies have found at the aggregate level. We conjecture that this is due to significant averaging out of good-specific real microeconomic shocks in the process of aggregation.
Book Synopsis Do Sticky Prices Increase Real Exchange Rate Volatility at the Sector Level? by : Mario John Crucini
Download or read book Do Sticky Prices Increase Real Exchange Rate Volatility at the Sector Level? written by Mario John Crucini and published by . This book was released on 2010 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: We introduce the real exchange rate volatility curve as a useful device to understand the role of price stickiness in accounting for deviations from the Law of One Price at the sector level. In the presence of both nominal and real shocks, the theory predicts that the real exchange rate volatility curve is a U-shaped function of the degree of price stickiness. Using sector-level European real exchange rate data and frequency of price changes, we estimate the volatility curve. The results are consistent with the predominance of real effects over nominal effects. Nonparametric analysis suggests the curve is convex and negatively sloped over the majority of its range. Good-by-good variance decompositions show that the relative contribution of nominal shocks is smaller at the sector level than what previous studies have found at the aggregate level. We conjecture that this is due to significant averaging out of good-specific real microeconomic shocks in the process of aggregation
Book Synopsis Real Exchange Rate and Output Variability by : Bankim Chadha
Download or read book Real Exchange Rate and Output Variability written by Bankim Chadha and published by . This book was released on 1989 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates? by : V. V. Chari
Download or read book Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates? written by V. V. Chari and published by . This book was released on 2000 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: The central puzzle in international business cycles is that real exchange rates are volatile and persistent. The most popular story for real exchange rate fluctuations is that they are generated by monetary shocks interacting with sticky goods prices. We quantify this story and find that it can account for some of the observed properties of real exchange rates. When prices are held fixed for at least one year, risk aversion is high and preferences are separable in leisure, the model generates real exchange rates that are as volatile as in the data. The model also generates real exchange rates that are persistent, but less so than in the data. If monetary shocks are correlated across countries, then the comovements in aggregates across countries are broadly consistent with those in the data. Making asset markets incomplete or introducing sticky wages does not measurably change the results.
Book Synopsis Exchange Rate Economics by : Ronald MacDonald
Download or read book Exchange Rate Economics written by Ronald MacDonald and published by Taylor & Francis. This book was released on 2007-03-12 with total page 465 pages. Available in PDF, EPUB and Kindle. Book excerpt: First published in 2007. Exchange Rate Economics: Theories and Evidence is the second edition of Floating Exchange Rates: Theories and Evidence, and builds on the successful content and structure of the previous edition, but has been comprehensively updated and expanded to include additional literature on the determination of both fixed and floating exchange rates. Core topics covered include: • the purchasing power parity hypothesis and the PPP puzzle; • the monetary and portfolio-balance approaches to exchange rates; • the new open economy macroeconomics approach to exchange rates; and • the determination of exchange rates in target zone models and speculative attack models. Exchange Rate Economics: Theories and Evidence also includes extensive discussion of recent econometric work on exchange rates with a particular focus on equilibrium exchange rates and measuring exchange rate misalignment, as well as discussion on the non-fundamentals-based approaches to exchange rate behaviour, such as the market microstructure approach. The book will appeal to academics and postgraduate students with an interest in all aspects of international finance and will also be of interest to practitioners concerned with issues relating to equilibrium exchange rates and the forecastability of currencies in terms of macroeconomic fundamentals.
Download or read book PPP Strikes Back written by Mr.Jean Imbs and published by International Monetary Fund. This book was released on 2003-04-01 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show the importance of a dynamic aggregation bias in accounting for the PPP puzzle. We prove that established time-series and panel methods substantially exaggerate the persistence of real exchange rates because of heterogeneity in the dynamics of disaggregated relative prices. When heterogeneity is properly taken into account, estimates of the real exchange rate half-life fall dramatically, to little more than one year, or significantly below Rogoff's "consensus view" of three to five years. We show that corrected estimates are consistent with plausible nominal rigidities, thus, arguably, solving the PPP puzzle.
Book Synopsis Systematic Movements in Real Exchange Rates in the G-5 by : Richard C. Marston
Download or read book Systematic Movements in Real Exchange Rates in the G-5 written by Richard C. Marston and published by . This book was released on 1990 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: Many recent studies have documented the random behavior of real exchange rates. This paper shows that real exchange rates defined for different sectors of an economy move closely together with one another even though each of the sectoral real exchange rates taken alone has a large random component. The sectoral real exchange rates are tied together by internal price links due to factor mobility within each national economy. Any differences between real exchange rates which develop, moreover, can be explained almost entirely by productivity differentials, at least in the long run. This paper contrasts the strong ties which bind together prices from different sectors internally with ties that bind the prices of goods from the same sector internationally. Prices are shown to be much more highly correlated internally than externally because flexible exchange rates disrupt normal pricing relationships between goods from different countries.
Book Synopsis Can Sticky Prices Account for the Variations and Persistence in Real Exchange Rates? by :
Download or read book Can Sticky Prices Account for the Variations and Persistence in Real Exchange Rates? written by and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Monetary Shocks and Real Exchange Rates in Sticky Price Models of International Business Cycles by : V. V. Chari
Download or read book Monetary Shocks and Real Exchange Rates in Sticky Price Models of International Business Cycles written by V. V. Chari and published by . This book was released on 1997 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: The data show large and persistent deviations of real exchange rates from purchasing power parity. Recent work has shown that to a large extent these movements are driven by deviations from the law of one price for traded goods. In the data, real and nominal exchange rates are about 6 times as volatile as relative price levels and they both are highly persistent, with serial correlations of 0.85 and 0.83, respectively. This paper develops a sticky price model with price discriminating monopolists, which produces deviations from the law of one price for traded goods. Our benchmark model, which has prices set for one quarter at a time and a unit consumption elasticity of money demand, does not come close to reproducing these observations. A model which has producers setting prices for 6 quarters at a time and a consumption elasticity of money demand of 0.27 does much better. In it real and nominal exchange rates are about 3 times as volatile as relative price levels and exchange rates are persistent, with serial correlations of 0.65 and 0.66, respectively.
Book Synopsis Real Exchange Rates and Sectoral Productivity in the Eurozone by : Martin Berka
Download or read book Real Exchange Rates and Sectoral Productivity in the Eurozone written by Martin Berka and published by . This book was released on 2014 with total page 67 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Sticky Exchange Rates and Flexible Prices by : Ms.Anne Marie Gulde
Download or read book Sticky Exchange Rates and Flexible Prices written by Ms.Anne Marie Gulde and published by International Monetary Fund. This book was released on 1991-12 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: Real exchange rate variability tends to be higher under flexible than under fixed exchange rates. The neokeynesian view attributes the higher variability to the combination of volatile nominal exchange rates with sticky prices. The neoclassical approach regards an increased incidence of real shocks as the culprit. We test the crucial assumptions underlying the two models for the interwar period. Prices and exchange rates are found to be equally flexible. We hence reject the neokeynesian sticky price view for our sample period. In contrast, our results are consistent with, while not constituting evidence for, the neoclassical equilibrium approach.
Book Synopsis Real Exchange Rates and Macroeconomics by : Rudiger Dornbusch
Download or read book Real Exchange Rates and Macroeconomics written by Rudiger Dornbusch and published by . This book was released on 1988 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper discusses exchange rate issues in advanced and in developing countries. For the determination of exchange rates among industrialized countries the key question is the following: What is the right framework -- the monetary approach, the equilibrium approach, the new classical approach or the macroeconomic model in the tradition of Mundell-Fleming. To shed light on that question two empirical problems are considered: What is known about the behavior of real exchange rates and how well do alternative models explain the relation among interest rates, expected depreciation and actual depreciation. The second half of the paper discusses real exchange rates in developing countries. This strand of literature has become important in the context of adjustment programs. We focus on the relation between real exchange rates and the profitability of capital. The model highlights the sharp discrepancy between the mobility of capital (even physical capital, in the long run) and the immobility of labor.
Book Synopsis Real Exchange Rates and the Prices of Nontradable Goods by : Mr.Gian Milesi-Ferretti
Download or read book Real Exchange Rates and the Prices of Nontradable Goods written by Mr.Gian Milesi-Ferretti and published by International Monetary Fund. This book was released on 1994-02-01 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis The Effects of Real Exchange Rate Volatility on Sectoral Investment by : Bahar Erdal
Download or read book The Effects of Real Exchange Rate Volatility on Sectoral Investment written by Bahar Erdal and published by . This book was released on 2017-04-19 with total page 176 pages. Available in PDF, EPUB and Kindle. Book excerpt: 5.3.4 Estimation Results for Germany -- 5.3.5 Estimation Results for Italy -- 5.3.6 Estimation Results for the Netherlands -- 5.3 Estimation Results for the Countries in the Flexible Exchange Rate System -- 5.4.1 Estimation Results for Finland -- 5.4.2 Estimation Results for Norway -- 5.4.3 Estimation Results for the United Kingdom -- 5.4.4 Estimation Results for the United States -- 5.5 Conclusion -- 6 Empirical Results and Implications Including Openness of Each Sector -- 6.1 Introduction -- 6.2 Estimation Results Including Sector-Specific Foreign Trade Data -- 6.2.1 Estimation Results for Finland -- 6.2.2 Estimation Results for Germany -- 6.2.3 Estimation Results for the United Kingdom -- 6.2.4 Estimation Results for the United States -- 6.3 Conclusion -- 7 Summary and Conclusions -- Appendix -- Bibliography -- Index
Book Synopsis Accounting for Persistence and Volatility of Good-level Real Exchange Rates by : Mario John Crucini
Download or read book Accounting for Persistence and Volatility of Good-level Real Exchange Rates written by Mario John Crucini and published by . This book was released on 2008 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: Volatile and persistent real exchange rates are observed not only in aggregate series but also in the individual good level data. Kehoe and Midrigan (2007) recently showed that, under a standard assumption on nominal price stickiness, empirical frequencies of micro price adjustment cannot replicate the time-series properties of the law-of-one-price deviations. We extend their sticky price model by combining good specific price adjustment with information stickiness in the sense of Mankiw and Reis (2002). Under a reasonable assumption on the money growth process, we show that the model fully explains both persistence and volatility of the good-level real exchange rates. Furthermore, our framework allows for multiple cities within a country. Using a panel of U.S.-Canadian city pairs, we estimate a dynamic price adjustment process for each 165 individual goods. The empirical result suggests that the dispersion of average time of information update across goods is comparable to that of average time of price adjustment.--Author's description
Book Synopsis Inflation Targeting and Exchange Rate Management In Less Developed Countries by : Mr.Marco Airaudo
Download or read book Inflation Targeting and Exchange Rate Management In Less Developed Countries written by Mr.Marco Airaudo and published by International Monetary Fund. This book was released on 2016-03-08 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.
