Real Exchange Rates and Sectoral Productivity in the Eurozone

Martin Berka, Michael Devereux and Charles Engel

No 1701, Discussion Papers from School of Economics and Finance, Massey University, New Zealand

Abstract: We investigate the link between real exchange rates and sectoral TFP for Eurozone countries. We show that real exchange rate variation, both cross-country and time series, closely accords with an amended Balassa-Samualson interpretation, incorporating sectoral productivity shocks and a labor market wedge. We construct a DSGE model to generate a cross-section and time series of real exchange rates compared to data. Estimates from simulated regressions are very similar to estimates for Eurozone data. Our findings contrast with previous studies that have found little relationship between productivity and real exchange rates among high-income countries that have floating nominal exchange rates.

Keywords: Balassa-Samuelson; Real Exchange Rates; Eurozone; Total Factor Productivity; Labor Wedge; Unit Labor Cost (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Real Exchange Rates and Sectoral Productivity in the Eurozone (2018)
Working Paper: Real Exchange Rates and Sectoral Productivity in the Eurozone (2017)
Working Paper: Real Exchange Rates and Sectoral Productivity in the Eurozone (2017)
Working Paper: Real Exchange Rates and Sectoral Productivity in the Eurozone (2015)
Working Paper: Real Exchange Rates and Sectoral Productivity in the Eurozone (2014)
Working Paper: Real Exchange Rates and Sectoral Productivity in the Eurozone (2014)
Working Paper: Real exchange rates and sectoral productivity in the Eurozone (2014)
Working Paper: Real Exchange Rates and Sectoral Productivity in the Eurozone (2014)
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