Real Exchange Rates, Income per Capita, and Sectoral Input Shares

Javier Cravino and Samuel E. Haltenhof
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Samuel E. Haltenhof: University of Michigan

No 659, Working Papers from Research Seminar in International Economics, University of Michigan

Abstract: Aggregate price levels are positively related to GDP per capita across countries. We propose a mechanism that rationalizes this observation through sectorial differences in intermediate input shares. As aggregate productivity and income grow, so do wages relative to intermediate input prices, which increases the relative price of non-tradables if tradable sectors use intermediate inputs more intensively. We show that sectorial differences in intermediate input shares can account for two thirds of the observed elasticity of the aggregate price level with respect to GDP per capita. The mechanism has stark implications for industry-level real exchange rates that are strongly supported by the data.

Keywords: Real exchange rates; aggregate price levels (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2017-08
New Economics Papers: this item is included in nep-opm
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http://www.fordschool.umich.edu/rsie/workingpapers/Papers651-675/r659.pdf

Related works:
Journal Article: Real Exchange Rates, Income per Capita, and Sectoral Input Shares (2020)
Working Paper: Real Exchange Rates, Income per Capita, and Sectoral Input Shares (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:mie:wpaper:659

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