Real exchange rates and sectoral productivity in the Eurozone

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Date
2014-10-02
DOI
10.3386/w20510
Open Access Location
https://www.nber.org/papers/w20510
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Publisher
NBER
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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.
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Keywords
Balassa-Samuelson, Real Exchange Rates, Eurozone, Total Factor Productivity, Labor Wedge, Unit Labor Cost
Citation
NBER Working Papers, 2014, 20510 pp. 1 - 69 (69)
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Working and Discussion Papers