EconPapers    
Economics at your fingertips  
 

Limited asset market participation and the consumption-real exchange rate anomaly

Robert Kollmann ()

No 41, Globalization and Monetary Policy Institute Working Paper from Federal Reserve Bank of Dallas

Abstract: Under efficient consumption risk sharing, as assumed in standard international business cycle models, a country's aggregate consumption rises relative to foreign consumption, when the country's real exchange rate depreciates. Yet, empirically, relative consumption and the real exchange rate are essentially uncorrelated. I show that this "consumption-real exchange rate anomaly" can be explained by a simple model in which a subset of households trade in complete financial markets, while the remaining households lead hand-to-mouth (HTM) lives. HTM behavior also generates greater volatility of the real exchange rate and of net exports, which likewise brings the model closer to the data.

JEL-codes: F36 F41 F47 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge and nep-ifn
Date: 2010
Note: Published as: Kollmann, Robert (2012), "Limited Asset Market Participation and the Consumption-Real Exchange Rate Anomaly," Canadian Journal of Economics 45 (2): 556-584.
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://dallasfed.org/assets/documents/institute/wpapers/2010/0041.pdf (application/pdf)

Related works:
Journal Article: Limited asset market participation and the consumption-real exchange rate anomaly (2012) Downloads
Working Paper: Limited Asset Market Participation and the Consumption-Real Exchange Rate Anomaly (2009) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:41

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Globalization and Monetary Policy Institute Working Paper from Federal Reserve Bank of Dallas Contact information at EDIRC.
Bibliographic data for series maintained by Amy Chapman ().

 
Page updated 2018-07-11
Handle: RePEc:fip:feddgw:41