Consumption and Real Exchange Rates in Dynamic Economies with Non-Traded Goods

David Backus and Gregor Smith

No 273751, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: We examine the possibility that nontraded goods may account for several striking features of international macroeconomic data: large, persistent deviations from purchasing power parity, small correlations of aggregate consumption fluctuations across countries, and substantial international real interest rate differentials. A dynamic, exchange economy is used to show that nontraded goods in principle can account for each of these phenomena. In the theory there is a close relation between fluctuations in consumption ratios and those in bilateral real exchange rates, but we find little evidence for this relation in time series data for eight OECD countries.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 26
Date: 1993-01
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Related works:
Journal Article: Consumption and real exchange rates in dynamic economies with non-traded goods (1993)
Working Paper: Consumption And Real Exchange Rates In Dynamic Economies With Non-traded Goods (1993)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:273751

DOI: 10.22004/ag.econ.273751

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