The real exchange rate and the structure of aggregate production

Ulrich Kohli () and Jean-Marc Natal

Journal of Productivity Analysis, 2014, vol. 42, issue 1, 13 pages

Abstract: This paper proposes a new, production theory approach to the determination of the real exchange rate, which is defined as the relative price of traded to nontraded goods as is common in the international trade literature. Using a Translog real GDI function that describes the aggregate technology of an open economy as a starting point, the real exchange rate can be formally derived as a function of domestic excess savings, the terms of trade, relative factor endowments and technological progress. Empirical results for Switzerland suggest that the main drivers of the real exchange rate are the terms of trade, followed by relative factor endowments. Contrary to conventional wisdom, the Balassa-Samuelson effect does not seem to play a significant role in explaining the long-term real appreciation of the Swiss franc. Copyright Springer Science+Business Media New York 2014

Keywords: Real exchange rate; Technological change; Terms of trade; Factor intensity; Middle products; Nontraded goods; F11; O47; C43; D33 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s11123-013-0356-9

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