Revisiting the importance of non-tradable goods' prices in cyclical real exchange rate fluctuations

Ida Wolden Bache, Tommy Sveen () and Kjersti Næss Torstensen

European Economic Review, 2013, vol. 57, issue C, 98-107

Abstract: In an influential paper Engel (1999) argues that essentially all the fluctuations in the real exchange rate can be attributed to fluctuations in the relative price of traded goods, and that only a small part of the fluctuations can be attributed to changes in the relative price of non-tradables. We revisit this important issue and our main finding suggests that the relative distribution wedge, i.e. the relationship between traded goods' prices at-the-dock and the retail prices of those goods, is key to understanding real exchange rate fluctuations. Importantly, our results suggest that variations in the relative wedge are driven by fluctuations in mark-ups and not in distribution costs.

Keywords: Real exchange rates (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Working Paper: Revisiting the importance of non-tradable goods' prices in cyclical real exchange rate fluctuations (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:57:y:2013:i:c:p:98-107

DOI: 10.1016/j.euroecorev.2012.10.007

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