Real Exchange Rate Fluctuations, Wage Stickiness and Tradability

Yothin Jinjarak and Kanda Naknoi

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: This study proposes a new measure of tradability and examines its relationship with volatility of the sector-speci c real exchange rate (RER). We derive degree of tradability from a model in which nal goods are produced from labor, capital and intermediate inputs. With free capital mobility, the share of labor in value added measures degree of nontradability. Then the RER is driven by changes in relative wage and those in seller's markup. The contribution of relative wage into RER variance is predicted to be increasing in nontradability. We provide evidence for our theory using U.S.-Canada monthly RERs and U.S.-Germany quarterly RERs.

Keywords: real exchange rate; wage stickiness; tradability (search for similar items in EconPapers)
JEL-codes: L12 L13 L22 L42 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2010-09
New Economics Papers: this item is included in nep-lab and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1255

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