Real Exchange Rate Fluctuations, Wage Stickiness and Tradability

Yothin Jinjarak and Kanda Naknoi
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Kanda Naknoi: University of Connecticut

No 2013-01, Working papers from University of Connecticut, Department of Economics

Abstract: This study constructs a new measure of nontradability of goods and demonstrates that it can explain the sectoral heterogeneity of the variance of sector-specific real exchange rate depreciation. Our measure of nontradability is the share of labor costs, including those incurred in the production of intermediate inputs. In the empirical analysis, we employ monthly data of US-Canada sector pairs and quarterly data of US-Germany sector pairs. We found that, for a certain range of nontradability, an increase in the degree of nontradability raises the variance of sector-specific real exchange rate depreciation. In addition, an increase in the degree of nontradability raises the fraction of variance of sector-specific real exchange rate depreciation accounted for by wage inflation differentials.

Keywords: real exchange rate; wage stickiness; tradability (search for similar items in EconPapers)
JEL-codes: F41 F42 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2013-02
New Economics Papers: this item is included in nep-opm
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Related works:
Working Paper: Real Exchange Rate Fluctuations, Wage Stickiness and Tradability (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:uct:uconnp:2013-01

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