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Real Exchange Rates and Sectoral Productivity in the Eurozone

Martin Berka (), Michael Devereux () and Charles Engel ()

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We investigate the link between real exchange rates and sectoral total factor productivity measures for countries in the Eurozone. Real exchange rate patterns closely accord with an amended Balassa-Samuelson interpretation, both in cross-section and time series. We construct a sticky price dynamic general equilibrium model to generate a crosssection and time series of real exchange rates that can be directly compared to the data. Under the assumption of a common currency, estimates from simulated regressions are very similar to the empirical estimates for the Eurozone. Our findings contrast with previous studies that have found little relationship between productivity levels and the real exchange rate among high-income countries, but those studies have included country pairs which have a floating nominal exchange rate.

Keywords: Balassa-Samuelson; Real Exchange Rates; Eurozone; Total Factor Productivity; Unit Labor Cost (search for similar items in EconPapers)
JEL-codes: F41 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-eff and nep-opm
Date: 2014-10
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https://cama.crawford.anu.edu.au/sites/default/fil ... a_devereux_engel.pdf (application/pdf)

Related works:
Working Paper: Real Exchange Rates and Sectoral Productivity in the Eurozone (2015) Downloads
Working Paper: Real Exchange Rates and Sectoral Productivity in the Eurozone (2014) Downloads
Working Paper: Real exchange rates and sectoral productivity in the Eurozone (2014) Downloads
Working Paper: Real Exchange Rates and Sectoral Productivity in the Eurozone (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2014-66

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