Intermediate Goods and Exchange Rate Disconnect
MPRA Paper from University Library of Munich, Germany
This paper introduces intermediate goods trade into a two-country real business cycle model and examines its implications for real exchange rate behavior. Intermediate goods trade is shown to reduce “exchange rate disconnect” by increasing the volatility of the real exchange rate relative to output and weakening the link between the real exchange rate and output. Intermediate goods trade also raises international output correlations and reduces the correlation between the trade balance and output.
Keywords: Exchange; Rate; Disconnect; Intermediate; Goods (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
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https://mpra.ub.uni-muenchen.de/88471/1/MPRA_paper_88471.pdf revised version (application/pdf)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:83075
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