The Real Exchange Rate in the Long Run: Balassa-Samuelson Effects Reconsidered
Michael Bordo (),
Ehsan Choudhri (),
Giorgio Fazio and
Ronald MacDonald ()
No 20228, NBER Working Papers from National Bureau of Economic Research, Inc
Historical data for over hundred years and 14 countries is used to estimate the long-run effect of productivity on the real exchange rate. We find large variations in the productivity effect across four distinct monetary regimes in the sample period. Although the traditional Balassa-Samuelson model is not consistent with these results, we suggest an explanation of the results in terms of contemporary variants of the model that incorporate the terms of trade mechanism. Specifically we argue that changes in trade costs over time may affect the impact of productivity on the real exchange rate over time. We undertake simulations of the modern versions of the Balassa-Samuelson model to show that plausible parameter shifts consistent with the behavior of trade costs can explain the cross-regime variation of the productivity effect.
JEL-codes: F31 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-int and nep-opm
Note: DAE IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed
Published as Bordo, Michael D. & Choudhri, Ehsan U. & Fazio, Giorgio & MacDonald, Ronald, 2017. "The real exchange rate in the long run: Balassa-Samuelson effects reconsidered," Journal of International Money and Finance, Elsevier, vol. 75(C), pages 69-92.
Downloads: (external link)
Journal Article: The real exchange rate in the long run: Balassa-Samuelson effects reconsidered (2017)
Working Paper: The Real Exchange Rate in the Long Run: Balassa-Samuelson Effects Reconsidered (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:20228
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().