Download or read book Nontraded Goods Prices and Real Exchange Rate Volatility written by Marco Aurelio Hernandez Vega and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation provides new empirical evidence on the importance of nontraded goods in real exchange rate volatility as well as two essays that evaluate the performance of a new trade model á la Ghironi and Melitz [2005] in replicating such evidence. Chapter 2 provides new empirical evidence by looking at more highly disaggregated data than used in previous literature on consumer price index components and trade for the US and Mexico for the period 2002 to 2009. The main empirical results from this exercise suggest that the relative price of nontraded to traded goods (RERN) accounts for between 64% and 73% of the real exchange rate volatility which is significantly higher than that found in past studies (around 30%). The correlation between RERN and the real exchange rate is 71%. In contrast with previous literature lower frequency data increases the importance of RERN in the real exchange rate volatility: for quarterly data it is between 68% and 84% and for annual data the importance is between 78% and 88%. These results provide new evidence against the sticky price theory; while they generally support the Balassa-Samuelson theory, facts regarding the correlation of traded and nontraded goods prices point to the need to modify some features of this theory. Chapter 3 evaluates whether a "new trade" model, where entry of heterogeneous firms into international trade is endogenous, can explain the empirical facts documented in chapter 2 better than can a standard Balassa-Samuelson theory, where nontraded goods are exogenously determined. A symmetric two country dynamic stochastic general equilibrium model with heterogeneous firms and entry and exit from domestic and export markets, á la Ghironi and Melitz (2005), performs reasonably well in certain dimensions. Simulations show that the importance of the relative price of nontraded to traded goods (RERN) can explain between 80% and 89% of real exchange rate fluctuations, and can explain a correlation between RERN and the real exchange rate of 97%. The model fails to replicate the empirical evidence that the relative price of nontraded to traded goods is negatively correlated with the relative price of traded goods. Finally, in chapter 4 I calibrate the model to an asymmetric equilibrium where two different economies interact, one large economy representing the US and one small economy representing Mexico. The calibration will involve updating the value of some exogenous variables like the fixed export costs and re-calibrating the shape parameter k from the Pareto distribution. As a result of this new calibration the steady state of the model matches some of the US-Mexico relationships quite well. For example, the steady state of the model implies that home consumption is four times higher than foreign consumption. This value is close to the one reported by Bergin and Glick [2009]. Home real wage is 1.4 times that of foreign country. This value is significantly smaller than the values reported in other studies where wages in the US are up to eight times higher than in Mexico. Nevertheless, it can be considered a good feature of the model that home wages are higher. I conclude that the asymmetric calibration of the Ghironi and Melitz [2005] model improves its performance in replicating the stylized facts reported in chapter two, although, with some caveats regarding the signs and magnitudes of some of the correlations and the fact that moving from monthly to quarterly frequencies does not increases the importance of the relative price of nontraded to traded goods in explaining real exchange rate volatility.

Download or read book Exchange Rate Policy and the Role of Non Traded Goods Prices in Real Exchange Rate Fluctuations written by Nestor Azcona and published by . This book was released on 2017 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses a DSGE model of two small open economies to explain certain features of real exchange rate cyclical fluctuations in countries with fixed and flexible exchange rates, focusing on the role of traded and non-traded goods prices. In particular, the model illustrates why the relative price of nontraded goods and the relative price between domestic and foreign traded goods are more volatile than the real exchange rate under a fixed exchange rate but not under a flexible exchange rate, why deviations from purchasing power parity for traded goods prices can be more volatile under a fixed exchange rate than under a flexible exchange rate, and why there is no correlation between the volatility of the real exchange rate and its variance decomposition.

Download or read book Non Traded Goods and Real Exchange Rate Volatility in a Two Country DSGE Model written by Nestor Azcona and published by . This book was released on 2016 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses a two-country dynamic stochastic general equilibrium model (DSGE) to study how different characteristics of an economy, such as openness or price stickiness, affect the contribution of the relative price of non-traded goods to real exchange rate fluctuations. The model shows that changes in the relative price between traded and non-traded goods are the main channel through which productivity shocks are transmitted to the real exchange rate. Productivity and monetary shocks also affect the real exchange rate through changes in the international relative price of traded goods. The economy's characteristics have a significant effect on the transmission mechanism and the overall volatility of the real exchange rate in response to both types of shocks.

Download or read book Exchange Rate Volatility and World Trade written by International Monetary Fund and published by International Monetary Fund. This book was released on 1984-07-08 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: In View of the continuation of substantial movements in exchange rate relationships among major currencies, the recent increase in protectionist pressures, and the disappointing performance of world trade, renewed concern has been expressed about the possible adverse effects of exchange rate variability on trade. Against the background of this concern, the following decision was reached at the ministerial meeting of the General Agreement of Tariffs and Trade (GATT) in November 1982.

Download or read book Non Tradable Goods and The Real Exchange Rate written by and published by "la Caixa". This book was released on with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Real Exchange Rate Dynamics in the Presence of Nontraded Goods and Transaction Costs written by Inkoo Lee and published by . This book was released on 2008 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:

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.

Download or read book Non Tradable Goods and the Real Exchange Rate written by Pau Rabanal and published by . This book was released on 2009 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: How important are nontradable goods and distribution costs to explain real exchange rate dynamics? We answer this question by estimating a general equilibrium model with intermediate and final tradable and nontradable goods. We obtain reasonable estimated parameter values using Bayesian methods, and find that the estimated model can match real exchange rate persistence and, to less extent, volatility. Nontradable sector technology shocks explain about one third of real exchange rate volatility. We present impulse responses to better understand the transmission mechanism of shocks in the open economy. We also show that in order to explain the low correlation between the ratio of relative consumption and the real exchange rates across countries, fiscal policy shocks are necessary in the model, in addition to technology shocks.

Download or read book Accounting for U S Real Exchange Rate Changes written by Charles Engel and published by . This book was released on 1995 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study measures the proportion of U.S. real exchange rate movements that can be accounted for by movements in the relative prices of non-traded goods. The decomposition is done at all possible horizons that the data allow -- from one month up to thirty years. The accounting is performed with five different measures of non-traded goods prices and real exchange rates, for exchange rates of the U.S. relative to a number of other high income countries in each case. The outcome is surprising -- relative prices of non-traded goods appear to account for essentially none of the movement of U.S. real exchange rates at any horizon. Only for one crude measure, which uses the aggregate producer price index as an index of traded goods prices, do non-traded goods prices seem to account for more than a tiny portion of real exchange rate changes. This pattern appears to be true even during fixed nominal exchange rate episodes. Special attention is paid to the U.S. real exchange rate with Japan. The possibility of mismeasurement of traded goods prices is explored.

Download or read book The Importance of Nontradable Goods Prices in Cyclical Real Exchange Rate Fluctuations written by Ariel T. Burstein and published by . This book was released on 2005 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Changes in the price of nontradable goods relative to tradable goods account for roughly 50 percent of the cyclical movements in real exchange rates"--National Bureau of Economic Research web site

Download or read book Supply Shocks and Real Exchange Rate Volatility in a Small Open Economy written by Nestor Azcona and published by . This book was released on 2016 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effect of overall and sector-specific productivity shocks on the real exchange rate in small open economies. A dynamic stochastic small open economy model shows that productivity shocks impact the real exchange rate mostly through changes in the relative price of non-traded goods and are unable to explain the large deviations from purchasing power parity for traded goods prices observed in the data. This paper also studies how the effect of productivity shocks on the real exchange rate changes when a country adopts a fixed exchange rate regime.

Download or read book Nontraded Goods Market Segmentation and Exchange Rates written by Michael Dotsey and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical evidence suggests that movements in international relative prices (such as the real exchange rate) are large and persistent. Nontraded goods, both in the form of final consumption goods and as an input into the production of final tradable goods, are an important aspect behind international relative price movements. In this paper we show that nontraded goods have important implications for exchange rate behavior, even though fluctuations in the relative price of nontraded goods account for a relatively small fraction of real exchange rate movements. In our quantitative study nontraded goods magnify the volatility of exchange rates when compared to the model without nontraded goods. Cross-country correlations and the correlation of exchange rates with other macro variables are closer in line with the data. In addition, contrary to a large literature, standard alternative assumptions about the currency in which firms price their goods are virtually inconsequential for the properties of aggregate variables in our model, other than the terms of trade.

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.

Download or read book United States Real Exchange Rate Fluctuations and Relative Price Fluctuations written by Caroline M. Betts and published by . This book was released on 2004 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Real Exchange Rates and the Prices of Nontradable Goods written by Stefano Micossi and published by . This book was released on 1994 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Roles of the Terms of Trade and Nontraded good prices in Exchange Rate Variations written by Alan C. Stockman and published by . This book was released on 1984 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper demonstrates that disturbances to supplies or demands for internationally traded goods affect exchange-rates differently than do disturbances in markets for nontraded goods. The paper develops a stochastic two-country equilibrium model of exchange rates, asset prices, and goods prices, with two internationally traded goods and a nontraded good in each country. Optimal portfolios differ across countries because of differences in consumption bundles. Changes in exchange-rates, asset prices, and goods prices occur in response to underlying disturbances to supplies and demands for goods. We examine the ways in which responses of the exchange-rate are related to parameters of tastes and production shares, and we discuss conditions under which these exchange-rate responses are "large" compared to the responses of ratios of nominal price indexes.

Download or read book Open Economy Macroeconomics written by Martín Uribe and published by Princeton University Press. This book was released on 2017-04-04 with total page 646 pages. Available in PDF, EPUB and Kindle. Book excerpt: A cutting-edge graduate-level textbook on the macroeconomics of international trade Combining theoretical models and data in ways unimaginable just a few years ago, open economy macroeconomics has experienced enormous growth over the past several decades. This rigorous and self-contained textbook brings graduate students, scholars, and policymakers to the research frontier and provides the tools and context necessary for new research and policy proposals. Martín Uribe and Stephanie Schmitt-Grohé factor in the discipline's latest developments, including major theoretical advances in incorporating financial and nominal frictions into microfounded dynamic models of the open economy, the availability of macro- and microdata for emerging and developed countries, and a revolution in the tools available to simulate and estimate dynamic stochastic models. The authors begin with a canonical general equilibrium model of an open economy and then build levels of complexity through the coverage of important topics such as international business-cycle analysis, financial frictions as drivers and transmitters of business cycles and global crises, sovereign default, pecuniary externalities, involuntary unemployment, optimal macroprudential policy, and the role of nominal rigidities in shaping optimal exchange-rate policy. Based on courses taught at several universities, Open Economy Macroeconomics is an essential resource for students, researchers, and practitioners. Detailed exploration of international business-cycle analysis Coverage of financial frictions as drivers and transmitters of business cycles and global crises Extensive investigation of nominal rigidities and their role in shaping optimal exchange-rate policy Other topics include fixed exchange-rate regimes, involuntary unemployment, optimal macroprudential policy, and sovereign default and debt sustainability Chapters include exercises and replication codes